The U.S. Federal Reserve finally began cutting the Fed Funds rate last Wednesday, with an initial drop of 0.5 percent. Fed chairman Jerome Powell also announced that two more rate cuts are likely this year and four next year.
This rate reduction, which was 25 basis points more than most economists had expected, “is an indication that the Fed has gained the needed confidence that inflationary pressures are moving sustainably toward their 2 percent target and satisfying their mandate of price stability,” said John Beuerlein, chief economist at the Pohlad Companies, Minneapolis-based firm that provides financial services to the commercial real estate sector.
According to a CBRE Intelligent/Investment Brief, this rate reduction was in response to both a recent softening in the labor market and increasing confidence that inflation will fall toward the Fed’s 2 percent target. The Fed also lowered its 2024 inflation outlook for personal expenditures to 2.3 percent from 2.6 percent and reduced its GDP growth forecast to 2.0 percent from 2.1 perent for the year.
The 0.5 percent rate cut brings the average commercial bank rate to a range of 4.75-5.00 percent. Prior to the rate cut, the best bank rate available, according to J.D. Blashaw, vice president at Orange County, Calif.-based MetroGroup Realty Finance, was either Prime based on SOFR (Secured Overnight Financing Rate) at 5.5 percent plus 2–3 percent, or 7-8.5 percent.
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