The Inside Look with Xander Snyder


Welcome to the sixth episode of ‘The Inside Look.’ Senior Commercial Real Estate Economist Xander Snyder discusses the Fed’s expectations for this year and what market expectations have to say about them.

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At its last meeting in 2023, the Federal Reserve decided to hold the Fed funds rate where it was, at about 5.3%. They also released their quarterly set of economic projections, which have some people fairly excited as they revised down the Fed’s rate expectations for the end of 2024. Today, we’re going to take a closer look at the Fed’s expectations for this year and what market expectations have to say about them.

I’m Xander Snyder and this is First American’s Inside Look.

Making forecasts about interest rates is challenging, especially when there are forecasts about the future. But, joking aside, anticipating the future price of money is extremely challenging as almost anything in the world can impact it. Two ways to go about dealing with uncertainty like this in economics is to refer either to expert consensus opinion or an aggregated wisdom of the crowd approach.

Now, the Federal Reserve’s own economic projections is clearly a form of expert consensus opinion, as there’s arguably no expert more informed about the Fed funds rate than the people themselves who will be setting it in the future. Currently, the Federal Reserve is expecting the Fed funds rate to fall by about 75 basis points from 5.3% today to 4.6% at the end of 2024, or roughly three rate cuts. And this represents a downward revision compared to the Federal Reserve’s last set of economic projections from September.

Of course, many disagree with the Federal Reserve’s rate expectations for this year. Currently, market expectations, our wisdom of the crowd, are that there will be more than three rate cuts in 2024. In fact, a majority of the market, roughly two thirds, currently anticipates 6 to 7 rate cuts this year. About 30% expects 4 to 5 rate cuts and 3% expects eight or more rate cuts this year alone.

Only a tiny sliver of the market, about 1%, agrees with the Federal Reserve on three or fewer rate cuts. So our wisdom of the crowd agrees with the expert consensus opinion that there will be rate cuts, but the market is expecting many more of them than the experts.

The Fed’s downward revise expectations for year end 2024 was certainly an encouraging data point to end 2023 on. Sure, there will be challenges in the commercial real estate world this year as debt comes due and certain buildings default. But if interest rates are lower by year’s end, that will reduce the quantity of distress that ultimately does materialize.

I’ll be giving a talk on the state of commercial real estate at ALTA’s Commercial Network Conference at the end of February in New Orleans. Hope to see you there.



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