End in sight for rate hikes?

The Federal Reserve raised interest rates by a quarter point for the 17th consecutive time last week and probably will again at its August meeting, but economists predict that the series of rate increases will end after that.

In a statement released after its Federal Open Market Committee meeting last week, the Fed hinted that it would not need to be as aggressive with its monetary policy to contain inflationary pressures, a clear indication economists say that the end is near for rate rises.

"The extent and timing of any additional firming ... will depend on the evolution of the outlook for both inflation and economic growth," the Fed's statement said, parting with the tone of its May statement which, like in past statements, was worded to indicate inflation needed to be contained more aggressively.

"Some further policy firming may yet be needed to address inflation," the May statement said, language that was interpreted to mean further rate increases were in store.

A pause in rate rises will come at an opportune time, considering that the pace of the economy grew over 5% in the first quarter but then slowed considerably to around 3% by the second quarter. Higher interest rates stifle economic growth, usually with the benefit of containing inflation.

The sturdy economy has prompted businesses to take more office space, which in turn has markedly helped real estate fundamentals nationwide. Lower vacancy rates have allowed landlords to increase rents, especially in major office markets like Manhattan. The improvement in the rental market has pushed loftily priced real estate to appreciate even further, or at least hold ground because of the increased cash flow properties are netting from higher rents.

According to Cushman & Wakefield senior managing director Janice Stanton, many real estate investors are currently saddled with a negative carrying cost for properties, meaning that the amount of income they yield from the property is not enough to cover their borrowing costs. According to Stanton, a break in interest rate rises will be welcome among such real estate investors because it should prolong the trend of rental increases and allow them to eventually boost cash flow to profitable levels.