The Federal Reserve announced its plans to begin taking steps to taper the pandemic stimulus. The dollar continued to rebound from its one-month low in September and though Fed Chair Jerome Powell stated that it was not yet time to begin raising U.S. interest rates, the backdrop of higher vaccine rates and accelerating economic recovery is furthering discussions about decreasing bond buybacks and raising near-zero interest rates. Still, uncertainties remain amid slowing jobs recovery and inflation.

Last September, the Committee stated its intention to continue asset purchases at a pace of at least $120 billion per month until substantial further progress has been made toward our maximum employment and price stability goals,” Powell said. “At today’s meeting, the Committee judged that the economy has met this test and decided to begin reducing the pace of its asset purchases. Beginning later this month, we will reduce the monthly pace of our net asset purchases by $10 billion for treasury securities and $5 billion for agency mortgage-backed securities.”

Interest rates were left near zero at the conclusion of the previous FOMC meeting in September as the Fed continued to monitor the job market. While the window was left open for tapering to begin as early as this meeting, that remained highly dependent on employment. September’s mixed U.S. jobs report only added to the uncertainty leading up to November’s meeting. Despite Powell stating that the FOMC’s substantial further progress for employment has been met, September’s meeting was followed by the smallest advance in payrolls this year–194,000–and the unemployment rate reflecting a decline in the labor force at 4.8 percent.

“Despite the slight dip in the labor force, there are many reasons to remain optimistic,” explained Ahron Sussman, Director, Capital Services, Ariel Property Advisors. “The past few months have experienced steady economic recovery across the country - a trajectory that has lenders extremely excited. The market is seeing a surge in loan applications, providing lenders with ample opportunity to deploy more capital.”

One example is Freddie Mac’s recent decision to drop Covid reserves, which marks a return to pre-pandemic levels of financing. The original reason for the reserves was to provide continuity in the lending market and to give liquidity to investors at a time when their tenant base may not have been paying rent. The release of these reserves is a signal of optimism for the multifamily market.

The real estate industry is experiencing a surge in demand that is likely to continue as return-to-office strategies continue to take shape and big tech firms migrate back to major cities, encouraged by a rejuvenating commercial landscape, widespread vaccination, job openings and new safety regulations.

This optimism was also echoed in Powell’s statement following today’s meeting and presented as the rationale behind further gradual tapering. “If the economy evolves broadly, as expected, we judge that similar reductions in the pace of net asset purchases will likely be appropriate each month, implying that increases in our securities holdings would cease by the middle of next year,” he continued. “That said, we are prepared to adjust the pace of purchases if warranted by changes in the economic outlook. And, even after our balance sheet stops expanding, our holdings of securities will continue to support accommodative financial conditions.”

Further evidence of this increased economic activity from a real estate perspective comes from the NYC multifamily market’s Q3 2021 performance, with rents seeing historic growth. In fact, according to Moody’s Analytics REIS, asking rents increased by 7.5% and effective rents increased by 7.9% since last quarter - the highest quarterly growth in at least 27 years.

Affordable housing has not been neglected in this multifamily activity. Due to this type of housing’s high degree of stability, there has been a renewed interest from lenders in this market. As a general rule, investing in affordable housing also provides a secure hedge against inflation and other economic vagaries.

The Fed’s decision to begin tapering is one that ultimately reflects an optimism in the market both as it exists today and how it will continue in the next quarter. It also reflects the slow but steady economic growth that the country has been experiencing as it emerges from the pandemic. This continued faith is in large part also fueling the increased activity across the commercial, retail, and residential sectors, which is poised to finish 2021 quite strongly and start Q1 2022 on a promising note. In the leadup to the FOMC’s next meeting, set to take place on December 15th, we can expect the Federal reserve to continue closely monitoring the market and make necessary adjustments, both to its tapering schedule and interest rates.