Market expectations for rate hikes and cuts throughout the remainder of 2023 have been significantly reshaped over the month of May and early June. The Federal Reserve hiked rates by 25 basis points at their May 3rd meeting, but all the action came with their mid-June meeting as a Summary of Economic Projections indicated that much of the Fed favored at least another 50 basis points in rate hikes this year. This can be visualized through Bloomberg’s World Interest Rate Probability (WIRP) function which portrays market perceived probability for future Fed decisions.
Following economic prints such as monthly Consumer Price Index (CPI), Personal Consumption Expenditures price index (PCE), and nonfarm payrolls print, there was an increase in expectation for future rate hikes due to inflation remaining sticky around two percent year-over-year goal, combined with a strong nonfarm payrolls print above trendline expectations. As a result, market expectation shifted from expecting multiple cuts before end 2023 to holding rates higher longer than previously thought – pushing back probability of cuts until early 2024 according to WIRP on June 15th .
The FOMC statement gave clear signal that policymakers will resume tightening while median forecast calls for additional two rate hikes this year; pricing in 25 basis point hike likely coming July followed by possible September hike according to WIRP on June 9th .
To gain further insights into current economic climate and its anticipated impact on commercial real estate join Berkadia’s upcoming Beyond Insights Webinar: 2023 U.S Investment Outlook featuring guest speaker Randy Quarles Former Vice Chairman Of The Federal Reserve System , Thursday ,June 22nd . Register now even if you cannot attend live session ; recording will be available afterwards !
