If there’s anything close to looking into a financial crystal ball, it’s the insight that comes out of the annual The Economic Symposium. Held in late August in Jackson Hole, Wyoming, this meeting is attended by central bankers, finance ministers, academics, and financial market participants from countries around the world; 2020 brought a digital meeting. The symposium’s commentary and speeches from central bankers and other influential officials have the power to affect Fed policy and significant market volatility–or stability. In typical years, this meeting of minds doesn’t make too many headlines, but 2020 hasn’t been a typical year.
Federal Reserve Chair Jerome Powell detailed a new policy approach to inflation—allowing it to rise higher than its typical 2% target, alongside letting the labor market run hot, and he emphasized to financial markets that rates will remain lower into 2023. This runs counter to the Fed’s prior policy stance that allowed rates to rise before inflation. Powell indicated that 2% inflation was a “symmetric” target, suggesting it could run high to make up for lackluster price intervals. Research shows these make-up strategies help make economic gains by permitting rates to stay lower for longer. Powell’s announcement not only affects what happens in the U.S.; leaders around the world took note at this new shift as they shape their own countries’ future policies in unprecedented times.
For now the Fed is managing a crisis. Rates have reached their lowest. The Fed’s purchases can target specific sectors, such as buying mortgage-backed securities to support housing markets. The funding solutions we have seen launch during this COVID-19 crisis illustrate how the Fed is willing to support the debt market.
The Fed will put more priority on employment gains going forward. Researchers presenting at the symposium explored the disconnection between the expected long-term unemployment rate and the unemployment rate that does not increase inflation. These numbers can’t be measured in advance, and new tools are needed to get accurate measurement.
Also, COVID-19 has hampered the collection of economic information. This has complicated policy-setting at a critical time. The U.S. decennial census, for example, is the basis for apportioning legislative representation and federal funding, where accurate counts are critical; response rates have lagged. (Did we mention 2020 was an atypical year?)
The Federal Reserve is not likely to hike the Fed Funds rate for years; reports indicate at least two years. The U.S. economy is still uncertain as the Covid-19 crisis continues. Millions are out of work, enhanced unemployment checks ended in July, and many Americans are struggling to make ends meet and stay in their homes. At the same time, people have begun returning to work following government lockdowns and the stock market is hovering just below all-time highs.
By keeping short-term interest rates near zero and buying up trillions of dollars of bonds, in addition to the new inflation strategy, the Fed is stimulating the nation’s economy the best it can. Things like auto loans, home equity lines of credit, and credit cards should have interest rates close to what you see now for some time. On the flipside, savers won’t yield much interest in their savings accounts. Keep in mind that if inflation rises as intended by the Fed, home loan rates will inevitably rise; home loan rates are anchored at near-all-time lows for the time being, so would-be homeowners are big winners here if they seize current mortgage rates.
Through all of this, real estate remains a real asset to hedge against inflation, and home prices will rise with inflation. The time to take advantage of real estate investments with better interest rates is now, and we’re here to help.
At Juniper Capital, we are proud to provide private real estate financing for commercial, multi-family residential, investment residential, fix and flip, land, construction and investment grade real estate loans throughout Seattle and the Northwest. As a direct private money lending company, Juniper Capital is ready to lend when opportunity knocks, and our team is here to help you finance your next real estate project. Give us a call to talk to one of our experienced loan officers and start the conversation today.