Fed Announces 50 Basis-Point Rate Cut

Watching anticipation of a rate cut has been like watching high-speed volleys during a tight tennis match. But the speculation of markets part is over; the central bank’s Federal Open Market Committee has made its decision. The Federal Reserve is cutting the benchmark federal funds rate by 50 basis points. That makes the federal funds rate a range of 4.75% to 5%.

“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” the central bank wrote. “The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”

Trying to predict the outcome has become a new sport, with the 30-day federal funds futures market fluctuating for weeks as to chances of a 25- or 50-basis-point cut, according to CME Group’s FedWatch. On August 16 it was 75% to 25% for the former; 86% to 14% on September 11; 36% to 64% yesterday; and 45% to 55% at around 1 p.m. today. That last was down from 31% to 69% this morning, according to LPL Financial.

The swings have suggested extreme uncertainty in perception. Some economists have blamed much of the volatility on “rather poor” communication on the part of the Fed.

“This should be a point of welcome relief to celebrate — and it is, in part,” the outlet said was included in a note to clients by Derek Holt, vice president of Scotiabank Economics, told MarketWatch earlier. “What unfortunately mars the occasion is that the Fed is communicating rather poorly with markets in a way that is driving elevated market volatility around size and pace issues.”

For many in CRE, the size of the rate cut isn’t important because neither option would be sufficient to clear underwriting for deals. Instead, the cut represents a chance for some hope after two long and hard years. That might start bringing investors back, increasing the number of transactions and, in turn, establishing greater price discovery, to entice even more buyers and sellers back to the table.

“While this is a great sign, I think people will wait to the extent that they can,” John Vavas, a shareholder at the law firm Polsinelli who focuses on CRE finance, told GlobeSt.com. “If you take the [business] cycle thesis, you want to wait until you’re near the bottom of the curve. Any extra bit helps. In the commercial world, you see a lot of deals that have to happen because of where you are in the cycle of owning a piece of property.”