Thursday marks the most highly anticipated Fed announcement in recent history. Economists and market watchers are nearly split down the middle RE predicting raise or no raise as worldwide markets are poised to react. Will the Fed raise rates? What guidance will they give regarding future increases? What effect does the Fed have on rates in the new normal post-crash economic world? To Raise or to Hold: (1) The Fed will raise tomorrow because: the continued uncertainty of waiting for the Fed is contributing to market volatility. The Fed needs to maintain credibility, markets have calmed in recent weeks giving cover to a raise, recent gains in oil prices are assuaging deflationary fears. (2) The Fed will not raise tomorrow because: They still want to wait for further data to come in as the US economic recovery remains inconsistent. Struggling emerging market currencies will be weakened further, they may want to not raise this month but provide more certain guidance for October or December 2015 and beyond. Note: Most recent raise cycles are not one and done (1999-2000: 6 raises; 2004-2005: 13 raises). The question is what is the normalization rate? Indications from the dot plots are approximately 3.75-4.00%, but many market watchers believe the economy could only stand a level of about 2.75-3.00%. CMBS: The first fall pools are pricing. The good news is that demand is solid and the market is firming up at new levels. An unusually low leverage pool saw AAA’s price at Swaps + 117 with price talk on some more standard pools is in the Swaps + 122-124 range. Originators are now more confident in pricing new 10 year, full leverage loans in the Swap + 240-260 range. …stay tuned… David R. Pascale, Jr. PS: Expect a quarter point raise….
