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Investors React to the Fed’s Similar Stance on Rates

Defining the future of real estate

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Franco Faraudo
May 02, 2024

Propmodo Daily

By Franco Faraudo · May 2, 2024

Greetings!

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The Federal Reserve concluded its two-day meeting yesterday with the widely anticipated decision to leave interest rates unchanged. But, Fed Chairman Powell's accompanying language sparked a shift in investor sentiment. In today's email, we'll explore the signs of this change.

Now, let's dig in!

Investors Cool on REITs as Fed Maintains Rate Stance

Federal Reserve Chairman Jerome Powell delivered the widely expected news that interest rates would remain unchanged until further evidence confirms inflation is returning to their 2% target. "Inflation has eased substantially over the past year while the labor market has remained strong, and that's very good news," he said during the post-meeting press conference. "However, inflation remains too high, further progress in bringing it down is not assured, and the path forward is uncertain."

This news prompted a slight pullback in publicly traded REIT investments. Boston Properties, the nation's largest office REIT, saw its stock price drop just below 5% in late-day trading. Other large REITs experienced similar declines following the Fed's announcement.

Interestingly, many REITs, including Alexandria Real Estate and SL Green, experienced a stock price increase right before the announcement, possibly due to optimistic investors betting on a potential rate cut. This late-day surge and subsequent retreat aligned with broader market trends, where a significant portion of trading activity occurs within the last ten minutes of the day.

Powell concluded with remarks acknowledging improvement: "Over the past year, as labor market tightness has eased and inflation has declined, the risks to achieving our employment and inflation goals have become more balanced," he said. But, he tempered this optimism by noting, "The economic outlook remains uncertain, and we remain highly attentive to inflation risks."

While some positive sentiment has returned to the investment community, most investors now expect rates to ease at the year's final meeting in November, based on interest rate futures prices. This signals a shift from the last meeting, where prices indicated no expected rate cuts in 2024.

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Insider Insights

🇨🇦 Loonie for the office: Canada’s Federal Government has just released its plans to bring governmental employees back to the office at least three days a week.

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