September 23, 2014 Real Estate Report - The Fed Transition

The Federal Reserve Board is going through quite a transition. Actually, more than one. The first transition is one of secrecy to transparency. In the past we had to guess at what the Fed was thinking. If they were planning a move, they never wanted to leak the news ahead of time because of what the "anticipation" might do to the markets. Over the past several years, they have transitioned to a more open culture, telegraphing potential moves well ahead of time in order to take that surprise factor out of the equation. The second transition is removing fiscal stimulus from the equation. The financial crisis and ensuing recession was so strong that the level of fiscal stimulus applied was unprecedented -- from record low interest rates to the purchase of hundreds of billions of dollars of Treasuries and mortgages. The Fed has continued to remove the purchase of Treasuries from the equation and they also face the second decision -- when to raise short-term interest rates. Because of the new era of transparency, Chairwoman Janet Yellen has been talking about dates from the time she assumed the seat. At first, talk of raising rates caused the markets to react as long-term interest rates rose. But as time went on, this effect has diminished. We are not sure if that is because of economic concerns, world-wide conflicts which have flared up or because the markets just got used to the message. The latest meeting of the Fed's Federal Open Market Committee took place last week and the statement released told us that while the Fed thinks conditions are improving, they believe rates should stay as is for a "considerable time." In many ways this statement tells us that there is "more of the same" coming from the Fed, at least for now. Keith Stewart 773-529-7000