Remember the summer of 2004? The Fed committee most likely had that in mind today, as this month’s meeting is predicted to be the last one before raising rates for the first time in 7 years. In May 2004, the Fed removed the word “patient” from their message as they signaled markets that the increase was coming in the next meeting. The Fed then raised rates 0.25% for 17 consecutive meetings. Today’s announcement left rates unchanged, painted a more positive economic outlook and notes some strengthening in the jobs market. They also note that inflation remains tame (recent reports show a 0.2% annual rise in prices, far from the 2.0% Fed target rate.) Interestingly, they refer to the continuing rout in commodity prices as “transitory” and make no mention of China’s issues. The Fed futures markets show that markets anticipate a 40% chance of a rise in September with more certainty (over 50%) in October or December with a consensus of two 0.25% hikes this year. The 10 year treasury is trading in the 2.25% range today. Many economists believe the Treasury will not hit 3.00% this year (it has not been 3.00% since 2014). One survey indicated a year end of 2.75%. CMBS continues to stabilize after the market roiling early in the month with lenders getting aggressive on proceeds and pushing pricing. Spreads for full leverage 10 year loans range from SWAPs + 205-220 depending on quality; all-in coupons around 4.50% (after nearing 5.00% earlier in the month)… stay tuned… David R. Pascale, Jr.
