This might be a very stupid question, but assuming Powell raises rates by 25 bps during Q4 and the economy stabilizes by the end of 2024 (or whenever doesn't really matter), where do you (experienced professionals) see SOFR, Fed Funds Rate dropping to. As a student, I don't have much of basis of where rates will end up, but guessing rates will never match SOFR 0.05% again. Again apologies if this doesn't make much sense, just trying to learn about rates. Thanks!
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Forward curve estimates between 3.5 and 4%.
It has been quite a long time, but that would stabilize rates for most credit spread products around 5.5-6%. That feels high if you've done anything in the last 20 years, but relative to history is pretty normal
Question said where do you see rates going. Any idiot can relay what the forward curve suggests, we all look at it everyday.
It hanging around 5% wouldn't be too surprising historically speaking. The national debt hitting an average of 5%+ instead of 2.1% (or whatever it was) could start causing some issues though so maybe that will cause downward pressure.
Higher for longer. SOFR/FedFunds/cap rates are all just products of the forward curve and unless the Fed needs to lower rates significantly we will not see rates move 100bps lower for quite a while. Forward rates show SOFR above 4% through mid 2025 at least. Disclaimer I don’t work in RE but am a rates trader…
Maybe a stupid question because you obviously know this shit, but aren't forward rates a function of fed funds rate? Vs other way around?
So my response was poorly worded. What I mean is that the break even rates for products linked to SOFR/fed funds (swaps) and caps linked to SOFR/fed funds are priced using the forward curve, i.e. they are products of the forward curve. Yes the forward curve on the front end is heavily influenced by the short term rate but as you move out the curve what you are looking at are spot rates for where the market *today* thinks the short term rate will be at the given point (say 10yrs out). So while they are linked, the short term rate is a component of the forward curve but does not exclusively determine it.
I hope short term rates go to 15% like they did in the early 80s. Asset values need to come down and the Fed needs to stop playing God with rates.
This is political suicide and no administration will let it happen. When a large majority of your population’s wealth resides in one asset class (real estate) and when this asset class is disproportionately affected by a rise in rates, you will have riots in the streets. Don’t get me wrong I would love it, but it’s not happening.
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