Higher federal interest rates could impact development in the Upper Cumberland and Middle Tennessee.
Walker Todd is a lecturer at Middle Tennessee State’s Economics and Finance Department, and worked for the Federal Reserve Bank in Cleveland, Ohio.
“On or near the Cumberland Plateau, there’s been a lot of real estate development activity related to constructing resort communities,” Todd said. “You could expect some of that to die down, as interest rates go up and mortgages become more expensive.”
The Federal Reserve raised interest rates Wednesday by a quarter of a point to a 1.75 to 2 percent range. This is the second time rates have risen this year, and is likely to increase twice more before 2019.
Todd said areas besides real estate development will also be effected by higher interest rates.
“The cost of doing business, as experienced by the manufacturers and farmers in Middle Tennessee, is going to go up,” Todd said, “largely because interest rates and cost of capital is going to be higher.”
Todd said the Fed should have focused more on fixing the foreign exchange rate, and kept interest rates the same.
“To get the exchange rate right, you have to get the interest rate right,” Todd said. “The feds, I think, have gone way too far on interest rates. They should’ve stopped at about 1.5 percent, and here we are at 2.”
Todd said if interest rates continue to rise, it could have a greater impact on the U.S. economy.
“What you may be looking at, with the Fed pushing interest rates as much as it has,” Todd said, “is the end of the stock market’s rise… [and] a decline in real estate values, or at least a limit that they wouldn’t go up any further than they already are.”
Todd said future increases could push rates to 3.5 percent by this time next year.
The Fed attributes rising interest rates to a low unemployment rate of 3.8 percent. Rates were lowered following the economic crisis in 2008 to stimulate growth.