Boston Federal Reserve President Eric Rosengren Speaks at NAIOP Event

This morning, Dr. Eric Rosengren, President and Chief Executive Officer of the Federal Reserve Bank of Boston, provided the keynote address at NAIOP’s well attended and informative program, “Banking on Real Estate: Capital Flows and the State of CRE Lending.”

David Begelfer & Dr. Eric Rosengren

His comments provided insight into how the Fed views world events like Japan’s recent earthquake and political unrest in the Middle East and their potential impact on the United States economy.  He indicated that the fear of inflation resulting from energy and food “supply shocks” seems to be unfounded.  Over the past 25 years, there does not appear to be much evidence of commodity price spikes dramatically affecting the core inflation rate or wages and salaries. These shocks have been transitory, with limited long-term effects on inflation and business/consumer expectations.

As a result, until there is progress on the Fed’s mandates of stable prices and employment, he believes that the current Fed accommodative monetary policy is appropriate. For now, there is no reason to slow the economy down with a tighter monetary policy.

That said, he indicated that the Fed would, most likely, take decisive and forceful action if inflation expectations start to rise.

Based on Dr. Rosengren’s comments, I would say that all indications are that this period of historically low interest rates will continue for the foreseeable future.  This is probably good news for current commercial real estate owners that are worried about the FDIC’s eventual implementation of a “mark to market” policy.  Having to refinance property, with falling rental revenue, would be all the more difficult with rising interest rates.  On the other hand, investors sitting on a lot of cash on the sidelines may still be sitting for a while longer.

OIL PRICES AND WAGES 

                      Source:  WSJ, BLS, NBER / Haver Analytics

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