The Federal Reserve Bank is expressing concerns that commercial real estate is bubbling in markets such as New York, San Francisco and Boston. Even so, Fed officials say they don't plan to raise interest rates because of it.
Fed Chairman Janet Yellen says she relies on Boston Fed President Eric Rosengren to be the official watcher of the commercial property sector. At a recent event, Rosengren said he is particularly worried about the skyrocketing prices of luxury multifamily properties in his hometown.
Observers say the Fed is reluctant to use monetary policy to try to slow overheating prices in the market. “CRE prices have objectively gone up, and even anecdotal reports suggest some froth in that market,” Roberto Perli, a partner at Cornerstone Macro LLC in Washington and a former senior Fed economist, told Bloomberg. "But most people at the Fed still think the funds rate is not the appropriate tool to address potential financial instability issues."