Today we’re talking about the latest interest rate increase announced by the US federal reserve. Fed chairman Jerome Powell announced a quarter point increase in the benchmark rate. This is despite the fact that the economic data could just have easily supported no rate increase. The forward looking guidance is about as murky as ever. They are pointing toward 2 rate increases in 2019 versus a previous forecast of 3 increases in 2019.
It is widely assumed that this interest rate increase means that all interest rates are going up.
But that is not necessarily the case. As real estate investors, the cost of capital is perhaps our single largest expense.
Some loans are indexed to the Fed short term rate. Others are indexed to the six month LIBOR rate. Most importantly, long term loans are indexed to the 10 year US treasury bill. The rate for the 10 year treasury bill has actually fallen since September.
