We are very pleased to turn the Desk of a Lender over to our newest team member, John, our high school intern. John, a student at Gibson Ek High School has an interest in pursuing a career in real estate, and will be helping Juniper with several research projects over the next semester. We are excited to have John as part of the Juniper team and are excited to see the fresh perspective he brings to this space.
The most recent Federal Reserve meeting saw more rate hikes and promises for less aggressive hikes in 2023, but officials project the rates to keep rising until 2024. Higher Fed rates allow Juniper to leverage its flexibility, creativity, and consistency to provide our borrowers with a viable alternative lending option when many conventional lenders have been less accommodating.
Mid-December, the Federal Open Market Committee held its last meeting of 2022, concluding a turbulent year for the Federal Reserve. The Committee voted to raise the rate for the 7th time that year by .5%, a smaller increment than in previous months. The rate going into 2023 is now at a range of 4.25-4.5%. At the meeting, officials agreed to be less aggressive with rate increases in the coming year, as too restrictive a monetary policy could drive the economy into a recession. They also noted that the rate increases were helping quell inflation, and they did not plan on lowering them in the near future. In the press conference afterward, Jerome Powell said, “I wouldn’t see the Committee cutting rates until we’re confident that inflation is moving down in a sustained way.”
The Federal Reserve has seen some rough patches throughout its history. The worst was “The Great Inflation,” which started in the mid-1960s with inflation on the rise and gold becoming more expensive. It reached a point where the Treasury didn’t have enough gold to cover all the dollars in circulation. Nixon announced the end of the gold standard in 1971, which decreased confidence in the American dollar. Inflation shot up to unprecedented highs of 14%, the highest it’s been in United States history. To counteract this, the Federal Reserve raised its rates repeatedly, peaking at 20%, also a historical high.
On the flip side, rates have dropped to near-zero twice since the creation of the Federal Reserve, both times relatively recently. The first was during the 2008 housing crisis in an attempt to breathe life back into the economy, after which, rates were not increased afterward until 2015. The second time was at the beginning of 2020 with the same goal in mind.
In the most recent SEP report, a collection of projections made by Federal Reserve officials, interest rates are predicted to rise to 5.1% over the coming year. The report projects the rates to fall from that point onwards, with 2024 seeing an expected 4.1% rate and 2025 with 3.1%. The long-term projection sits at 2.5%, above the 2018-2019 average of 2%, but still a fairly healthy rate. The report also shows a projected decrease in PCE (personal consumption expenditures) inflation rates over the next few years, 2023 seeing a projected 3.1%, with that number decreasing again down to 2.5% in 2024, 2.1% in 2025, and 2% in the long term.
With a volatile market and rising Fed rates – Juniper sees this time in the market as a unique opportunity to grow our institutional relationships and get in front of the highest quality of deals. As banks become more hesitant and increase their guardrails – Juniper’s flexibility and agile structure provides our clients a viable alternative to conventional banks. This is exciting both for the immediate future, and our ability to build relationships with high level borrowers, developers, and debt teams as the market eventually adjusts back to a more normal Fed borrowing rate.
If you’re seeking quality commercial real estate investments throughout the Pacific Northwest, we’re here to help. Juniper Capital provides private real estate financing, including hard money loans for commercial, construction, multifamily residential opportunities and more. If you would like more information on this topic, call us today.