As Commercial Real-Estate Prices Soar, Fed Weighs Consequences

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The worry has turned more concrete. Commercial real-estate prices are soaring and Fed officials face the conundrum of what, if anything, to do.

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Central bank officials would feel an urgency to act only if they believed the commercial real-estate market could suffer a sharp reversal that destabilizes the financial system or hurts the U.S. economy. That isn't clear. Commercial real estate is a relatively small segment of the overall economy, and unsustainable debt hasn't emerged as a problem.

But financial bubbles have been root causes of the past three recessions and is a consideration as the Fed nears a decision on interest rates. Officials have signaled they will raise short-term interest rates from near zero at their policy meeting next week with the economy and job market improving. For some officials, the commercial real estate boom--and other financial sector froth--could be an added incentive.''