**A Grab-Bag of Inflation, Consumer Spending, and CRE Investment**
For those just emerging from a news blackout, the Federal Reserve has decided to maintain the Effective Federal Funds Rate (EFFR) between 4.25% and 4.5%—a level it has sustained since December 2024. At its most recent Federal Open Market Committee meeting in June, the Fed also hinted that two interest rate cuts could be possible before the end of the year.
However, not everyone is convinced. Marcus & Millichap Senior Vice President John Chang expressed skepticism in a recent video titled “Flat Fed, Inflation Risks and the Durability of Retail Sales.” According to Chang, “the Fed doesn’t believe they need to lower rates any time soon.”
**Potential Inflationary Pressures Loom**
Chang pointed to several possible inflationary triggers that could keep the Federal Reserve cautious, including:
– **Tariffs**: While their economic impact hasn’t materialized yet, Chang warned that tariffs could eventually make their presence known across a wide range of goods—everything from cars and building materials to appliances and even soda cans.
– **Oil Prices**: Driven by tensions between Israel and Iran, oil prices recently surged by 20%, rising to around $75 per barrel at the beginning of June.
– **Shipping Costs**: The cost of shipping a container from Asia to the U.S. West Coast has surged by 167% since the start of the year, now approaching $6,000.
“These inflation pressures will take time to manifest,” Chang said. “But that’s exactly what the Fed is thinking about: What will inflation look like in four to six months?”
**Is the Consumer the Savior?**
Consumer spending, which makes up about 70% of GDP, continues to play a pivotal role in economic stability. But spending requires two key elements: employment and confidence.
Chang noted that job creation remains “relatively sturdy.” In addition, consumer debt is trending downward and savings levels have increased. Retail sales showed a slight uptick in May—but Chang cautioned that this could be explained by consumers rushing to make purchases ahead of pending tariffs.
The bigger issue, according to Chang, is consumer confidence. “What will likely shape the economy in the second half of the year is whether consumers remain sufficiently confident to keep spending,” he observed.
**Connecting to Commercial Real Estate**
Amid the uncertainty dominating the economic landscape, Chang offered some optimistic insights for the commercial real estate sector. While interest rates may decline slowly, he believes that “the current investment climate still looks solid.”
That said, Chang acknowledged some caution. Certain property types in specific markets might face headwinds in the latter part of 2025, and overall economic uncertainty could impact real estate decision-making.
Still, he emphasized that “for most property types and locations, the performance outlook remains positive.” As a result, Chang concluded, “That’s why I believe we’re in a comparatively good investment window right now.”
