Hospitality Investing News - Southwest May 2024

Fed cuts may be delayed. Bumpier CPI inflation has pushed back Wall Street expectations for the Federal Reserve to begin cutting interest rates from June to September. Still, the Fed tracks Core PCE more closely, which places lower weights on several CPI components, including housing costs. Core PCE has been on a cooling trend, and a lower March reading — set to be released on April 26 — could sway Fed expectations again. If Core PCE continues to come down, after already reaching 2.8 percent in February, this month's elevated CPI measure may be less impactful on the Fed's decision-making process. Lending spreads remain narrow. The yield on a 10-year treasury reached a 21-week high after the CPI data release, amid reduced demand for treasuries and higher-for-longer interest rate expectations. Elevation in the 10-year yield is keeping lenders' spreads narrower than historical norms, reducing the pool of investment opportunities deemed viable for financing. However, should multiple cuts occur this year, lenders and borrowers will be better-positioned to pin down terms. Financing uncertainty — which has challenged deal flow since mid-2022 — will gradually alleviate, helping revive trading activity.