The Federal Reserve is currently walking a tightrope, with many questioning whether rate hikes will tame inflation or tip the economy into recession. According to Marcus & Millichap Senior Vice President and National Director of Research and Advisory Services John Chang, the Fed’s efforts are beginning to bear fruit. In a recent video from Marcus & Millichap, Chang noted that job creation has slowed and core retail sales have flattened while inflation dropped to 3% on June 2023 and the Personal Consumption Expenditures Price Index (core PCE) hovered around 4.6%.
Chang likened using interest rates as an economic steering tool to guiding a giant cargo ship: “After you start turning the wheel, it takes a while for the ship to actually turn; if you turn it too much, that ship will over-correct forcing you spin in another direction.” He believes we won’t know until Q4 whether they’ve oversteered or not; however if they have then mild recession could be likely due largely in part by durable job market conditions.
Reinstatement of student loans could also reduce consumer spending according Deutsche Bank’s estimation of $14 billion per month – representing about 3% drop – which may present additional risks during second half of 2023 but right now soft landing appears increasingly probable for commercial real estate sector with revived apartment demand performing well alongside retail sector fundamentals remaining soundly intact.
