Federal Reserve Update

The Federal Reserve meeting this past week didn’t yield any real surprises, but did seem to telegraph that the plan is to keep the federal funds rate down unless inflation becomes a problem.
The Fed reiterated that the target range for the federal funds rate is between 0% and 0.25%, with the discount rate set to 0.75%. Some of the Fed officials have indicated that raising the discount rate could be an early strike against inflation pressures when they arise in the future.
Right now the Fed is sticking with the opinion that inflation is “transitory,” but unemployment is elevated. Quoted from the meeting: “information received since the Federal Open Market Committee met in March indicates that the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually.” With the next meeting in June, it looks like the Fed just wants to “hold and wait.”
Fed Beige Book Report Released
The latest Fed report on economic activity was also just released. The consensus is that the pace of economic growth is consistent with an ongoing recovery. While all 12 Fed districts reported growth, it was not great in several districts, and high gas prices were cited as a contributor to slower growth.
Interest rates remaining close to zero doesn’t mean that there aren’t policy options to stimulate the economy. The Fed could:
• make a statement extending the length of time they anticipate interest rates to be low.
• increase the money supply.
• support government spending to stimulate the economy.
Raising the discount rate to reflect the more normal 1% spread is another option, but this would be seen by many as a warning of a coming rate hike.
The U.S. Senate has voted to require a one-time audit of the Federal Reserve’s actions during the financial crisis, particularly the loans to financial institutions.

For Investors?
What does this mean for real estate investors? More of the same for interest rates means more of the same for investors. It’s still a really amazing market for those able to take advantage of extreme value in foreclosures and either flip to long term investors or consumers. Long term investors who can meet current higher down payment and credit requirements are still enjoying great opportunity for positive cash flow rental property acquisition.