Interest Rate Risk to Increase as Fed Weans Economy Off QE3 via Commercial Property Executive

Whether it is the leaking of the agenda for the annual Jackson Hole symposium sponsored by the Federal Reserve, or the recent opinions offered by the individual members of the Board of Governors, or even the newly released economic indicators on unemployment and inflation, all eyes and ears seem to be focused on any hint from the Fed about when tapering will begin. Many investors believe that tapering, or the gradual unwinding of the Fed’s third round of quantitative easing (QE3), is long overdue and are anxious for the markets to begin to clear. Other investors, as demonstrated by the rapid sell-offs in the stock market indices and the decline in bond prices, fear an increase in interest rates when tapering begins.

According to the institutional investors polled for Real Estate Research Corporation’s (RERC’s) summer 2013 issue of the RERC Real Estate Report, “Operation Unwind,” the majority of investment survey respondents expect tapering to begin yet this year, with 20 percent of respondents expecting tapering to begin in third quarter 2013 and 36 percent of respondents expecting tapering to commence in fourth quarter. And once tapering does begin, the biggest risk for investors is the “possible surge in interest rates,” state RERC’s institutional investment survey respondents.

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