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Fed Plan To Sell Off $4.5 Trillion In Assets Could Boost CRE Borrowing Costs

Janet Yellen, Federal Reserve Chairwoman
Federal Reserve Chair Janet Yellen

In addition to raising short-term interest rates this month, the Federal Reserve has announced plans to start selling its assets to help better manage inflation. 

After the financial crisis the Fed acquired $4.5 trillion in bonds and other securities to try and stabilize the economy and lower long-term interest rates. Fed Chair Janet Yellen said the economy is showing a level of resilience, which now makes this policy of quantitative easing unnecessary, The Real Deal reports.

The Fed will shrink its portfolio by $10B now, then gradually increase the sell-off each quarter. The decision presents positives and negatives for the commercial real estate industry, TRD reports, since the Fed reducing its balance sheet could result in higher long-term rates, in turn raising borrowing costs and possibly lowering property valuations as a result. Yellen said the Fed hopes to avoid disrupting markets too much by implementing a slow and gradual sell-off plan.