Economic Update

Last month, the Federal Reserve made a significant move by cutting the Federal Funds rate by 50 basis points after holding rates steady for several months. Many operators and investors saw this as a strong indication that interest rates would start trending downward. However, the opposite occurred in the treasury market, with the 10-year Treasury yield rising about 64 basis points in just over a month, from 3.65% to 4.29%. This increase was influenced by various factors, including slightly higher-than-expected CPI data for September, suggesting inflation may be more persistent than anticipated. This highlights the Fed’s greater influence on short-term rates, while the long end of the yield curve remains more sensitive to inflation expectations.

In light of this, market expectations for future rate cuts have been tempered. Whereas a 25-50 basis point cut was anticipated at the next Fed meeting, there is now a 98% probability of a 25-basis point decrease, with no expectation for a 50-basis point cut.

For the multifamily sector, many operators rushed to refinance with their lenders when rates temporarily dipped before the Fed’s rate cut, only to see their chances disrupted by the volatility that has defined the market over the past two years.