Some pundits and economists are sounding alarms that by increasing interest rates too fast or too high, the Federal Reserve might cause the next recession. However, we believe that bankers should direct their concerns to other economic and credit developments – such as low cap rates, high LTVs, and dubious pro forma cash flows. We believe that the likelihood of a Federal Reserve policy error causing the next recession is exceedingly low, and the cause and effect between short-term interest rates and recessions is not so obvious.
Tag: Interest Rates
Bankers are bombarded with views, opinions and predictions. Now that the FOMC raised interest rates by 25 basis points and has embarked on a tightening cycle, most economists, pundits and correspondent salespeople are trying to convince community bankers of their specific rate view. But bankers should be circumspect of others’ rate views and should not buy into one rate path but instead consider various possible interest rate paths. Bankers should be mindful of the dispersion around that mean.