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Real Estate Industry Shrugs Off Fed Rate Decision

Credit remains tight for real estate projects, and additional cuts to the federal funds rate won't loosen the strings.

By Erika Morphy | Updated on June 29, 2008

After the series of whacks the Federal Reserve Bank’s Open Market Committee has taken to the federal funds rate during the past year , the monetary authority has finally decided to give its prime recession-fighting tool a rest. Fed policymakers, led by Fed Chairman Ben Bernanke, decided at their latest meeting to keep this key interest rate unchanged, at 2%.

The reasons were hardly unexpected: inflationary pressures are of growing concern to the Fed, now rivaling the recessionary ones that have fueled the cuts thus far. For the real estate community, the decision was met with a shrug. That is because the industry, which has been gripped by a credit crunch since last August, never believed relief would be delivered by yet another cut to the rate. Indeed, even as the Fed continued to lower interest rates throughout the last several months, credit remained tight as ever.

“My view is that the real estate capital markets, especially for permanent debt, have not and do not generally respond in the immediate term to the Fed’s movement,” Stuart Gross, executive managing director of New York City-based Eastern Consolidated, tells GlobeSt.com. “So much debt for short-term purposes is LIBOR based.”

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