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ALL EYES ARE ON THE FED AND ITS DECISIONS FOR 2024 .
By DAVID EISEN
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“ W all Street is gearing up for rate cuts ” read the lede in a recent Wall Street Journal article that presupposes interest rate cuts could be coming soon , a salve to investors everywhere who have either been on the sidelines in wait or owners who have assets ready to sell but can ’ t find a credible buyer .
The Journal , citing data from the CME Group , refers to interest rate futures , which in November indicated “ a roughly 60 % chance the Fed
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will lower rates by a quarter-ofa-percentage point by its May 2024 policy meeting , up from 29 % at the end of October .” The same data also pointed to four total cuts by the end of the year .
The Fed began raising interest rates in March 2022 in order to counter rising inflation to its current target rate of 5.25 % – 5.50 %. The federal funds rate is used to control the supply of available funds . Raising the rate makes it more expensive to borrow , which lowers the supply of available money . That , in turn , increases
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short-term interest rates and helps keep inflation in check . Lowering the rate has the opposite effect , bringing shortterm interest rates down .
For investors who rely on leverage to get deals done , higher interest rates are a bane . Should the Fed decide to retrench , the expectation is a pick-up in hotel transactions and more appetite to build new hotels , given the opportunity to do so .
“ If anything , it ’ s going to certainly spur more activity because part of the reason why
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12 hotelsmag . com Jan / Feb 2024 |