If markets really believe that Fed rate hikes are coming, will their impact be felt first in real estate markets that have enjoyed record low rates for the better part of a decade? The Financial Times reports:
The US real estate sector faced heavy selling pressure on Thursday, as Treasury bond prices declined, amid rising expectations that the Federal Reserve will raise interest rates this year.
The market-implied odds that the Fed increases rates in December have crept higher throughout October, hitting nearly three-quarters on Thursday from 60 per cent at the start of the month, as data have reinforced expectations that economic output growth accelerated after a disappointing first half of 2016.
At the same time, an increasing number of top Fed policymakers have warned over the risks that tightening in the labour market could eventually push inflation above the central bank’s 2 per cent target if it does not slowly increase its benchmark interest rate, which remains just slightly above the crisis-era low.
“Combined with the ongoing uptrend in core inflation and the economy at full employment, the risks are rising that the Fed is falling behind the curve,” Torsten Slok, chief international economist at Deutsche Bank, said.
As a result, “a December rate hike looks very likely”, said Zach Pandl, an economist at Goldman Sachs.
Jeremy Jones, CFA
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