Economic Fears Persist at Latest Fed Meeting
The central bank has a new role: managing sentiments.
In a move that was surprising to few, the Federal Reserve Open Markets Committee decided to once again keep interest rates level, at a target range of 4.25 to 4.5 percent.
Indicator updates
The decision is in line with widespread predictions of a slowing but not yet crashing economy, absent further shocks. The labor market, one half of the Fed’s dual mandate, still appears strong, but may be softening. According to reports from NBC, jobless claims reached 2 million in the second week of June, the highest figure in more than three years.
Inflation, the other motivator for the Fed’s decision making, appears to be weathering the storm reasonably well, though it’s difficult to price in the effects of tariffs and an escalating Middle East conflict so soon. The Bureau of Labor Statistics reports that the Consumer Price Index rose to 2.4 percent in May, a 10-basis-point increase from April. Core inflation is still at 2.8 percent, unchanged year-over-year.
READ ALSO: Multifamily Investors: Buying Time?
In fact, NBC reported that some import-dependent industries such as cars, furniture and apparel saw price declines in May. At the same time, the Commerce Department posted a 0.9 percent decline in retail sales for the same month, 30 basis points higher than Wall Street predictions.
While not committing to any specific action at a press conference following the meeting, Fed chair Jerome Powell highlighted the fundamentals’ impacts on the Central Bank’s decision making and forecasts on inflation and GDP growth. “These individual forecasts are always subject to uncertainty, and uncertainty is unusually elevated,” Powell said. At the moment, a previously predicted rate cut in July appears to be off the table.
The third mandate
At this point in time, the Fed’s decisions also appear to play considerable role in influencing feelings among businesses and consumers. This is certainly the case for multifamily investors and developers.
“When consumers and businesses start to believe that prices will continue to rise, they act accordingly: retailers raise prices faster, workers demand higher wages and spending accelerates,” said Greg Friedman, CEO & managing principal at Peachtree Group, an Atlanta-based private credit and real estate investment firm. “When consumers believe that high prices are the new norm, they change behavior by withdrawing from big-ticket purchases. That’s why the Fed’s real challenge right now isn’t the latest price data; it’s managing public psychology.”
