Over the past few months, the biggest concern for commercial real estate investors has been how long the Federal Reserve will continue its program of quantitative easing and purchases of long-term bonds. There are now two factors which make an upcoming tapering of this program increasingly unlikely: the ongoing government shutdown and Janet Yellen’s nomination as the next chair of the Federal Reserve.

Recently, Forbes magazine reported that they believe that Yellen will continue to support the current policies of quantitative easing as well as pursuing other policies which will increase employment nationwide (For more information on the Fed’s QE policy, check out our blog explaining it). Forbes goes on to quote Yellen as saying that the “Federal Reserve has been working with a number of federal agencies and international bodies…to implement a broad range of reforms to enhance our monitoring, mitigate systematic risk, and generally improve the resilience of the financial system.” Robert Lenzner’s overall assessment of Yellen is that her “understanding of why the economic recovery is fragile seems most astute and candid.”

According to Bloomberg, the announcement of her nomination was following by a rise in U.S. index futures and Treasury yields. The article goes on to say that Yellen was the preferred candidate for this position in surveys of economists.

Yellen’s popularity among economists combined with the increases sectors of the stock market indicate an overall confidence by investors that her policies will be beneficial for the country and that she will carefully consider when it is best to begin tapering the Fed’s quantitative easing program. These assumptions about Yellen’s future policies are backed up by the Fed’s recent announcement that it plans to maintain low short-term interest rates until the nation’s unemployment rate drops to at least 6.5 percent.

Another reason for Yellen’s popularity as a nominee stems from her current position as Vice Chairman of the Fed. Economists and investors appreciate that she is already familiar with the central bank and has been actively involved in the stimulus policies that have been essential to pulling the U.S. back out of the recession caused by the 2008 financial crisis.

Hopefully, the optimism and consumer confidence boost brought about by Yellen’s nomination will help to balance out some of the backlash from the government shutdown and potential debt default. This could potentially keep interest rates down, so that borrowers can continue to qualify for less expensive financing and the commercial real estate market can continue to recover.

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.  [google_authorship] has been in the private capital lending business for 41 consecutive years.

Sources:

Hopkins, Cheyenne and Joshua Zumbrum. “Yellen to Be Named Fed Chairman, First Female Chief.” Bloomberg 9 October 2013. Online. http://www.bloomberg.com/news/2013-10-08/yellen-to-be-named-fed-chairman-as-obama-taps-first-female-chief.html

Lenzner, Robert. “‘Forward Guidance’ on Janet Yellen’s Reign at the Fed.” Forbes 13 October 2013. Online. http://www.forbes.com/sites/robertlenzner/2013/10/13/for-yellen-maximum-employment-takes-center-stage/