Federal Reserve Raises Federal Funds Rate by 75 Basis Points

The Federal Reserve’s Federal Open Markets Committee (FOMC) raised their rates by 75 basis points, the largest rate increase since 1994, in an effort to slow down the rate of inflation. Additional interest rate hikes are expected throughout the remainder of 2022. The Fed’s action was due to decades-high inflation, currently at close to 9% this year. Food and energy costs have been two of the largest contributors to the high rate of inflation. Global supply chains have been affected by Covid-19 and the ongoing war in Ukraine has rattled markets. The high cost of housing and labor have also been major factors causing price increases. The Federal Reserve’s action is intended to achieve price stability in the market, even if higher interest rates lead to increased unemployment. The Fed has a target rate for inflation of 2%, so further rate increases are almost a certainty. The rate increase by the Federal Reserve has resulted in an increase in US Treasury rates, which in turn, translates to higher rates for Apartment Loans and Commercial Mortgage Loans. Investors looking to acquire or refinance apartment building loans and commercial real estate loans are seeing rates that are significantly higher now than they were at the beginning of 2022. Higher rates affect net cash flow, so many properties are now qualifying for lower loan amounts than they were previously.