**A Grab-Bag of Inflation, Consumer Spending and CRE Investment**
For those just tuning back into the economy, the Federal Reserve has decided to maintain the Effective Federal Funds Rate (EFFR) between 4.25% and 4.5%—a rate unchanged since December 2024. At its June Federal Open Market Committee meeting, the Fed signaled that two rate cuts might be in the pipeline for later this year.
However, not everyone is betting on a rate cut. Marcus & Millichap Senior Vice President John Chang shared his skepticism in a recent video titled “Flat Fed, Inflation Risks and the Durability of Retail Sales.” According to Chang, the Fed is unlikely to lower rates any time soon.
### Inflationary Pressures on the Rise
Chang highlighted several key factors contributing to inflationary concerns:
– **Tariffs** – While their impact hasn’t been fully felt yet, Chang warned that tariffs could soon affect prices across a range of goods—from automobiles and building materials to household appliances and even aluminum soda cans.
– **Oil Prices** – Spurred by the Israel-Iran conflict, oil prices rose by 20% to reach around $75 per barrel at the start of June.
– **Shipping Costs** – The cost of shipping a container from Asia to the U.S. West Coast has surged by 167% since the beginning of the year, now approaching $6,000.
“These inflation pressures will take time to manifest,” said Chang. “But that’s exactly what the Fed is thinking about: What will inflation look like in four to six months?”
### Can the Consumer Save the Day?
Consumer spending continues to be a major driver of the U.S. economy, accounting for roughly 70% of GDP. But spending depends on two key factors: employment and confidence.
Chang noted that job creation remains robust, consumer debt levels are declining, and savings rates are improving. Retail sales saw a slight uptick in May, though Chang cautioned that this could reflect pre-tariff buying rather than a sustained trend.
“What will likely shape the economy in the second half of the year,” Chang said, “is whether consumers remain sufficiently confident to keep spending.”
### Implications for Commercial Real Estate
Amid all the economic uncertainty, Chang offered a silver lining for the commercial real estate (CRE) sector. Interest rates may not fall quickly, but the investment climate remains strong.
While he acknowledged that certain property types in specific markets could see turbulence in the latter half of 2025, overall performance remains encouraging.
“For most property types and locations, the performance outlook remains positive,” Chang said. “That’s why I believe we’re in a comparatively good investment window right now.”
