Fed leaves interest rate unchanged

Real Estate Weekly, Oct 2, 2002 by Parke Chapman

The Federal Reserve left a key interest rate unchanged last week, still leaving the door open for future rate reductions if the economy continues to sour.

With Gulf War anxieties compounded by a consistently volatile stock market, the nation is anxious enough. The Fed admitted as much, saying "considerable uncertainty persists about the extent and timing of the expected pickup in production and employment owing in part to the emergence of heightened geo-political risks."

The main stock indices remain sluggish. The NASDAQ is trading at its lowest level since 1996, and the Dow industrials closed last week at their lowest level since 1998.

The federal funds rate--the interest that banks charge each other on overnight loans-is now at 1.75%, its lowest in 41 years. Many types of borrowing move in lock step with the Fed's rate. Mortgage rates and corporate borrowing are based on interest rates set in the bond market, where long-term rates are also extremely low. This latest session marks the sixth straight time that the Fed has decided to leave rates unchanged.

"Rates will likely be lowered in the future. But for real estate, the single most important gauge is the amount of capital available to invest," said Tim Welch, executive managing director at Cushman & Wakefield.

He noted that there is a "disconnect" between the strong building sales and sluggish leasing market. For now, said Welch, sluggish leasing will not undercut demand to buy office buildings, which is being fueled by the amount of money available for mortgages.