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How The Federal Reserve is Planning Ahead

In a recent Reuters article, they provided excellent information regarding the Federal Reserve’s planning and outlook for 2021 and beyond. In 2020, the Federal Reserve (also known as “the Fed”) revised its strategy for supporting the U.S. economy based on new challenges we faced throughout COVID-19. Based on the new strategy of keeping interest rates low and buying long-term securities (bonds), it’s likely the Fed’s approach will be tested if the COVID-19 vaccines boost the economy as many industry analysts expect.

Final Fed Meeting Summary

The Fed held their last meeting of 2020 on December 15th and 16th.  The seven major takeaways are: 1) The Fed is expected to keep interest rates near zero for years to come (likely through 2023) to support economic stabilization and growth; 2) Keeping rates low is a major driver to support getting the U.S. unemployment level back to the pre-COVID-19 level; 3) To-date, the post-COVID-19 labor market has recovered about half of the jobs lost from COVID-19 impacts; 4) They optimistically expect industry increases in travel, dining, and other COVID-19 affected social activities (as the vaccines are rolled out) to help boost economic growth; 5) They plan to maintain a massive bond-buying program which they will continue to review to determine if adjustments are necessary based on market reaction; 6) Inflation is to be monitored closely to hold it to their target of 2%; 7) Overall economic growth should pick up as unemployment decreases, and the Fed will continue to support the long-term outlook of the economy.

How Real Estate is Impacted

Real estate should continue to maintain sound economic and investing fundamentals as we prepare for 2021. Despite facing new and unexpected challenges, the multifamily industry was a stable asset class in 2020. Investors in the asset class were able to maintain asset values and continue to generate net operating income on average. As the vaccines are rolled out and the economy continues to strengthen based on the Fed’s support, the real estate industry (multifamily specifically) should continue to be a sound investment vehicle for investors to protect capital, earn a return on investment, and receive tax advantages. We’ll have more due diligence to compete on potential impacts from political changes, so stay tuned.