Written by: Harrison LaHaie
What’s in the News
Inflation eased from 6.5% to 6.4% from December to January. Lael Brainard, Vice Chair of the Federal Reserve and one of its most dovish members, is leaving to join the National Economic Council, removing one of the few members looking to slow the rate rise. Investors shifted focus to Fed Chair Powell’s comments about the need to keep raising interest rates. An earthquake in Turkey and Northern Syria has left thousands dead. Disney is planning to cut 7,000 more jobs. Corporate bonds are bouncing back after a rough several months. CVS reached a deal to acquire Oak Street Health, expanding its healthcare capabilities as a company.
What's Next for CRE
Rates are always the story and to understand the future for rates, inflation must be the focus of the conversation. Inflation continues to come down, as mentioned before, but it is not coming down at a tremendous rate. At 6.4%, inflation is still far above the target of 2%. With rates already high relative to what Fed officials see as the neutral rate (2-2.5%), rate increases will be mild. This slowing of rate increases means that buyers and sellers will be better able to close gaps in their understanding. It is unlikely that rates spike dramatically any time soon. Now, the Fed will wait to see what inflation does.
Looking Ahead
Rhetoric on a recession has been all over the place in recent weeks. Some analysts suggest that the recession is behind, while others warn of a doomsday scenario. The data is not clear whether the first two quarters of 2022 was a true recession, but it does not seem that there was a real slowdown in consumption. With rates relatively high and looking to remain high for a year or more, it is highly unlikely that there will not be some issue that triggers a recession. Companies continue to announce layoffs, but the labor market remains strong. Attempting to put a timeline on a recession is incredibly difficult with such disparate data. Not to be cliché, but only time will tell if and when a recession will occur.
Sources: Globe St, WSJ, First Trust, Federal Reserve.