The Azucena Take: Takeaways from the Federal Reserve Meeting (Nov 2022)
Last week, the Federal Reserve announced another rate hike. The overnight rate was raised by 75 BPS, bringing the Federal Funds rate up to 3.75% (the highest since 2008). This was a surprise to no one as many leaders and investors have added this hike to their financial models.
The real information investors need to focus on came during the press conference. Three key points were brought up that matter more to the investment real estate market. This is a breakdown of those points and what it means for investors.
Three Key Takeaways
1. Raising Interest Rates Going Forward: Going forward, 75 BPS interest rate hikes will be unlikely. Investors could expect more rate hikes in the future but as high as 50 BPS. A lot of this will be based on the state of inflation and the economic climate. It should also be noted that 75 BPS hikes have not been taken off the table completely.
This is a mixed blessing for investors. On one hand, it would be easier to plan financially. Compared to 2022, investors could better plan out what the market is going to be like when growing or reducing their holdings. On the other hand, it means they could expect rate hikes in the coming years and capital could become more expensive.
2. Impact of the Labor Market: According to Chairmen Powell, reducing inflation will also require some reduction of the labor market. Currently, the unemployment numbers are at 6.1 million but there are 10.7 million job openings. Office, retail and industrial properties have already felt the effects of this labor market (good and bad).
3. Window for a Soft Landing: Many are now wondering if a soft landing is possible. The answer is nobody is sure. Nobody can predict when a recession will happen or how devastating it could be. We could experience one in 2023 or we could be in a recession now. The market works in a cycle of expansion (GDP is growing), peak (GDP stops growing), recession (GDP is declining), and recovery (GDP starts to grow).
What it Means for Investors?
The big takeaway for investors should be everything they need to plan going forward. Do expect rate hikes and prepare your holdings for a possible recession. 2023 might be a bumpy year but you want to be ready to ride it out and walk away into the prosperity of 2024.
The Azucena Take provides an inside look into the investment real estate market using the research done and data collected by Marcus & Millichap