Fed Ready to Raise Pre-Election? Today’s statement indicated the Fed’s “risk fear factor” has diminished greatly in the past few months. Less than expected fallout from Brexit, improving US economic reports (unemployment, retail sales, etc) and recent positive news from China have given the Fed confidence that their second rate increase in this cycle is appropriate. But when? The September and December meetings are the likely dates; but will an institution designed to be “apolitical”, act in September, 6 weeks before the Presidential election? Today’s statement seems to indicate they are ready for a September bump if the data continues to support such a move. The futures market is favoring December. CMBS Update: Spreads are tightening as recent pools have been well received. The Dodd Frank risk retention rules take effect in late December, but new loans originated in October/November need to be compliant. Many originators have structured entities and pool structures to accommodate the new regulations requiring them to retain 5% of the collateral (instead of selling all of it into the capital markets). The first such compliant pool will go to market next month, with three major originators teaming up. The execution of this pool will be closely watched and should provide guidance as how new loans will be priced at the end of 2016 and into next year and beyond. The next few months could be a golden opportunity (low treasury, no risk retention) for borrowers. Right now, new 10 year loans are pricing in the low 4’s. stay tuned
