Interbank Market News Scan: The Fed speak not providing much to shift foreign exchange markets …

A Bloomberg interview with Federal Reserve Bank of Dallas president Robert Kaplan along with remarks by Federal Reserve Board vice-chair Richard Clarida and Federal Reserve Bank of Atlanta president Raphael Bostick did not provide much information to attribute to any shifts in the foreign exchange markets. 

In a 9 August 2021 interview with Bloomberg, Mr Kaplan expressed confidence about where the fed funds rate, the overnight rate for loans between Fed member banks, stood.  The current target range of the fed funds rate is between 0 and .25%. 

Mr Kaplan expressed caution that the fed funds rate and the effects of asset purchases by the Federal Reserve be looked at separately.  Currently the Federal Reserve is purchasing $120 billion a month of US Treasury securities and agency-backed securities as part of a strategy to keep liquidity in the credit markets while keeping borrowing rates low.  The Federal Reserve’s monetary policy is designed to add fuel to U.S. economic growth by making lower cost credit available to businesses.    

In remarks made the following day, Federal Reserve vice-chair Clarida noted that the U.S. was out of the recession precipitated by government lock down of the economy in March 2020.  He expects the economy to continue its expansion through next year while cautioning that growth will be tempered by a variant of the coronavirus responsible for the Covid-19 pandemic.  Vice-chairman Clarida does see unemployment continuing to fall through 2023 along with inflation which he forecasts to be around 2.2% in 2022 and 2023.

The Federal Reserve is today following a flexible rate policy that will allow the economy to run periodically over its inflation target of 2%.  Dallas Fed president Kaplan did note that businesses are expecting to raise prices, in line with Federal Reserve forecasts on inflation.  Mr Kaplan also noted that there was an active debate regarding when the Federal Reserve would start cutting back on its monthly $120 billion a month asset purchases. Mr Kaplan also believes that adjusting asset purchases now would put less pressure on the fed funds rate.

As Federal Reserve Bank of Atlanta president Bostick shared today, the two percent inflation target number is thought by the Federal Reserve to be the appropriate numerical goal to mitigate the risks of deflation.  The rate, as a pre-condition to a healthy economy, is seen as appropriate in assisting households protect themselves from any changes in purchasing power.

The takeaway for traders is that sluggish growth in the US in 2022 and 2023 may result in tempered appreciation of the dollar’s value in those years.  So far, the Federal Reserve is seeing little change in relative income or price changes.  Nor does the Federal Reserve seem to signaling much in relative interest changes, at least in the short to intermediate term.  

For a consultation on any regulatory or legislative discussions or announcements, please reach out to us at altondrew@altondrew.com for information on consultation rates and to reserve an appointment.

Federal Reserve Bank of Atlanta creates commercial real estate index to assist risk assessment.

The Federal Reserve Bank of Atlanta yesterday announced the development of a new commercial real estate index designed to provide banks with a better assessment of momentum and risks in the commercial real estate market. The press release has been reproduced below.

Source: Federal Reserve Bank of Atlanta

9 November 2020

The Federal Reserve Bank of Atlanta announces the release of the U.S. Commercial Real Estate (CRE) Momentum Index which combines economic and real estate market data for more than 300 metro areas to provide insight into the momentum of change in CRE markets across the country.

A new interactive market analysis tool will enable users to track the CRE Momentum Index over time to identify CRE trends and assess market risks for the four major property sectors—apartment, office, retail, and industrial—as well as view the underlying variables that affect the index’s movement. One of the intended uses of the tool is to help small and medium-sized banks more quickly identify and accurately gauge risk as they are actively engaged in commercial real estate lending.

The CRE Momentum Index combines publicly available economic data such as employment, e-commerce, retail sales and others, with third-party, market-specific data such as occupancy trends and construction forecasts. The tool also provides a running quarter-to-date analysis as data are released in order to improve tracking in between quarterly data releases.

“Exploring both economic and commercial real estate dynamics in tandem helps users understand the movements in commercial real estate markets, and it is particularly helpful to look at these dynamics by property type,” said Lauren Terschan, senior data analytics and real estate specialist in the Atlanta Fed’s Supervision, Regulation, and Credit division, who helped develop the tool. “By looking at changes in overall market momentum, this tool will help users track market undulations and help identify potential risks.”

According to NAIOP Research Foundation, commercial real estate contributed more than $1.1 trillion to the U.S. GDP and supported nine million American jobs in 2019.

“Commercial real estate is a hugely important sector to the overall economy and contributes significantly to job creation, investment and lending,” said Brian Bailey, CRE subject matter expert in the Atlanta Fed’s Supervision, Regulation and Credit division, who developed the index’s methodology. “It is critical that industry participants, lenders and regulators have an excellent understanding of economic drivers and risks, and we believe the CRE Momentum Index will help with that understanding.”

The CRE Momentum Index is available in the Data and Tools section of the Atlanta Fed website.

Contact: Karen Mracek | 470-249-8348