Rate hike fails to dampen party.

The Fed bumped short-term interest rates up yet again last week, from 4% to 4.25%, the 13th consecutive time it has raised rates by a quarter point.

The rise, just like the gradual increases before it, didn't seem to inspire in the real estate industry the kind of caution that would put a cramp on the record investment sales market of the last few years.

2005 has been a record year of investment sales activity in Manhattan, despite eight straight increases to short-term rates, many of which had the effect of ratcheting short-term rates closer to long-term rates rather than preserving the once larger spread. Manhattan saw approximately $22 billion of real estate trade hands, an amount nearly 50% greater than the previous record of $15 billion set in 2004.

With long term Treasury rates remaining low in spite of short term rate rises on indications that inflationary pressures are being contained, experts think that the record pace of transactions and values could persist well into 2006 and perhaps beyond.

"We have vibrant growth and yet core inflation numbers are very good," said Gary Gabriel, an executive director at Cushman & Wakefield. "We're very encouraged going into 2006."

Just in case anyone was worried about further rate increases putting a damper on real estate pricing, the Fed hinted in its statement that its series of rate increases might soon end.

In each of its statements since it began raising rates from rock bottom 1% levels in June of 2004, the Fed has described rates as "accommodative," to indicate that rates were unusually low to stimulate economic growth. The Fed conspicuously didn't use that word to describe its current monetary policy in the statement it released after the latest rate rise on December 13. If the current monetary policy is neutral rather than accommodative, analysts have asserted that rate rises should soon remit, although most expect the Fed to raise rates by a quarter point again at its next meeting on January 31, 2006 --Alan Greenspan's last meeting as the Federal Reserve's chairman.