The Federal Open Market Committee (FOMC) met on December 14th and 15th to discuss improvements in the sectors most affected by the pandemic as well as positive job growth and the Fed’ expectations for inflation moving forward. The main points of focus during their recent meetings have been the tapering of asset purchases and raising short-term interest rates. The economy’s outlook continues to be affected by potential new variants but the easing of supply constraints and public health progress is expected to lead to strong economic gains and reductions in inflation.

“To date, the Fed’s approach has remained focused on when to increase interest rates while keeping an eye on supply chain issues and continued inflation” said Eli Weisblum, Director, Capital Markets, Ariel Property Advisors. ”Interest rates paid on reserve balances were held at .15 percent, which maintains the previous level set in June of 2021 - the target range continues to be between 0 and .25 percent. The committee acknowledged that Covid and possible variants could affect the economic outlook moving forward, but did not indicate it was influencing their decisions at this time.”

Fed Chair Jerome Powell said the central bank will continue to withdraw from its efforts and recent influence on the economy as inflation continues to be high. Powell said he believes reducing monthly bond buys projects to move more quickly.. The pace of bond buys is intended to be diminished, constituting $20 billion in treasury bonds and $10 billion in agency mortgage-backed securities. The committee also expects to increase its holdings of treasury securities to $40 billion beginning in January, as well as $20 billion of agency mortgage-backed securities each month.

“The Committee judges that similar reductions in the pace of net asset purchases will likely be appropriate each month, but it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.” said Jerome Powell in the press conference. “The Federal Reserve’s ongoing purchases and holdings of securities will continue to foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.”

“The expectation is still for interest rates to rise three times in 2022. There is cautious optimism in the commercial real estate sector that employees will continue to return to the office and commercial real estate will maintain its pace of recovery,” said Weisblum. “If tapering does continue as planned and interest rates are raised, the sense of stability could create more long-term confidence in the market.”