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HFF Research Update for March 30, 2016: Yellen at the Top of Her Lungs

Wednesday, March 30, 2016

Weekly insights on current research in the commercial real estate industry from HFF Managing Director of Research Jimmy Hinton. View Daily Rates on the HFF website or access the HFF Daily Rates App in iTunes.

We have previously discussed the notion of two forces working against one another within the FOMC: one party concerned that continued rate hikes will further destabilized already weak economies abroad, the other party voicing concern about expansion of core inflation.

Excluding the costs of food and energy, which can be more volatile than other household staples, core inflation is the FOMC’s preferred metric for costs of goods, and, in February, it expanded at an annual rate of 1.7 percent -- indeed below the target 2 percent but the highest rate in about 18 months.

Analysis of Market Insights and Economic Performance

On the very heels of this report, Federal Reserve Chairwoman Janet Yellen spoke at the Economics Club of New York.

“Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy,” said Yellen in a prepared address. “This caution is especially warranted because, with the federal funds rate so low, the FOMC's ability to use conventional monetary policy to respond to economic disturbances is asymmetric. If economic conditions were to strengthen considerably more than currently expected, the FOMC could readily raise its target range for the federal funds rate to stabilize the economy. By contrast, if the expansion was to falter or if inflation was to remain stubbornly low, the FOMC would be able to provide only a modest degree of additional stimulus by cutting the federal funds rate back to near zero.”

The words “especially warranted” are the equivalent of her jumping up and down.

This immediately resulted in a weaker USD, lower UST yields and today lower corporate bond yields, which are now approaching 4 percent on the 10-year BBB; spreads remain at YTD lows.

About Jimmy Hinton

HFF Jimmy HintonMr. Hinton serves as Managing Director of HFF, responsible for the firm’s national research efforts. Mr. Hinton works with the executive management team to assist in investor relations and to inform both HFF staff and firm clients with in-depth analysis of economic, property and capital market trends. He is also responsible for providing extensive market reports, client presentations and deal-specific analysis for debt placement and investment sales assignments. Mr. Hinton’s responsibilities include substantial interaction with pension funds, life insurance companies, regional and CMBS lenders, REITs, foreign investors and private equity funds.

During his tenure at HFF, Mr. Hinton has supported the execution of more than 150 commercial real estate transactions totaling more than $4.5 billion in 20 states. Mr. Hinton has experience in fixed- and adjustable-rate debt, mezzanine debt, construction loans and joint venture executions on behalf of clients engaged in the acquisition, development and recapitalization of property types including multi-housing, industrial, office, retail, medical office and storage properties.

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