Rate freeze just the tonic for real estate market.

The Federal Reserve left interest rates at 5.25% for the second straight time at its Federal Open Market Committee meeting last week, indicating that the moderation in economic growth in recent months would be enough to curb lingering inflation concerns.

The Fed paused its series of 17 consecutive quarter point interest rates hikes first at its August meeting for fear of stifling the economy and to allow the increases--which lifted interest rates from a historical low of 1% beginning at the Fed's June 2004 meeting--time to take hold.

"This allows them to let the medicine they injected into the system have an effect," said Gary Gabriel, a managing director and investment sales broker for Cushman & Wakefield in New Jersey.

Inflation has remained a persistent foe despite the rising rates however. According to Department of Labor statistics, the Consumer Price Index hovered at 2.2% for the first half of 2006, just above the Fed's threshold and unchanged from levels at the end of 2005.

But there is evidence that the existing rates hikes in tandem with present economic conditions will be enough to further curb the CPI without bringing short-term rates immediately higher.

GDP growth has dampened from roughly 5% in the first quarter to 3% in the second quarter and stood at 2.9% by the end of August, a gradual slowdown that the Fed attributed to a weakening residential real estate market.

Energy prices, which have been a key factor in spurring inflation, meanwhile have dropped as well. Trading at a record high of just over $78 per barrel in June, oil is now selling in the low $60s per barrel.

"Inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand," the Fed's statement read.

The trends create positive conditions for the commercial real estate industry. Interest rates, although far from their rock bottom 1% levels in 2004, remain low historically and have not had the effect of unraveling the unprecedented levels of appreciation commercial real estate assets have undergone in major markets such as New York, Southern California and Washington DC.

That appreciation has been based on more than the widespread recognition in recent years of real estate as a mainstream investment among institutional investors, but also on the anticipation among many landlords that economic growth will boost future cash flow in the form of higher rents and occupancy.

Many feel that if the Fed can continue to avoid rate hikes, or keep inflation at bay with a few quarter point nudges here and there, the economy shouldn't suffer and real estate metrics will continue to tighten.

Such measures have already significantly improved in Manhattan over the past two years, especially in midtown, which is inching towards historically low vacancy rates and high rents.