The Federal Reserve is walking a tightrope as they continue to raise interest rates in an effort to tame inflation and avoid tipping the economy into recession. According to John Chang, Senior Vice President, National Director of Research and Advisory Services at Marcus & Millichap, these efforts are beginning to bear fruit. In a recent video from Marcus & Millichap , Chang noted that there has been a definite loss of economic momentum with job creation slowing and core retail sales flattening. Additionally, inflation was down 3% on June 2023 while the Personal Consumption Expenditures Price Index (core PCE) hovered around 4.6%.
Chang stated that using interest rates as an economic steering wheel is like controlling a giant cargo ship; it takes time for the ship’s direction change after turning its wheel too much can cause it over-correcting in another direction – something we may not know until fourth quarter 2023 when assessing if this rate hike steered too hard or not enough resulting in either mild or severe recession respectively. Despite potential risks beyond interest rates appearing later this year such as reinstatement of student loans reducing consumer spending by $14 billion per month according Deutsche Bank , right now soft landing looks increasingly probable which bodes well for commercial real estate due revived apartment demand and performing retail sector along with sound property types across most markets should stabilize interests rate achieve soft landing supporting fundamentals within CRE industry overall .
