Interest Rates Will Rise Until Inflation at 2 Percent: Powell
Federal Reserve Chairman Jerome Powell said in a speech last week that Fed leaders will continue to raise interest rates until they feel inflation is under control. The announcement came during an economic policy symposium in Jackson Hole, Wyoming, where Powell said the goal is to bring inflation down to 2 percent. “Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy,” Powell said during his remarks. “Without price stability, the economy does not work for anyone.” The Fed most recently raised interest rates during its meeting in late July, the fourth rate hike in a row. Borrowing costs are now at their highest level since 2019.
In his speech, Powell noted the “lengthy” period of restrictive monetary policy that former Fed chair Paul Volcker, who led the central bank from 1979 to 1987, employed to bring down inflation in the early 1980s. While it proved successful, Powell said he wants to avoid a long period of high rates by “acting with resolve now.” Powell’s comments sent stocks plunging, with the S&P 500 dropping 3.4 percent on Friday. Massachusetts Senator Elizabeth Warren criticized Powell’s remarks about continued interest rate hikes, saying the moves by the Fed could “tip this economy into a recession.”
Rising interest rates and high inflation have already caused a slowdown in commercial real estate lending in the second quarter, with the pace of lending falling 7.9 percent, according to CBRE. The environment has also led to some of the industry’s largest players to shift their strategy. SL Green, Manhattan’s largest landlord, is pivoting its focus to shedding debt. Meanwhile, major multifamily lender Signature Bank said in a recent earnings call that it would slow its commercial real estate lending due to rising interest rates. Real estate’s largest commercial brokerage firms and industry trade groups haven’t commented yet on Powell’s latest remarks, but it seems clear that commercial and multifamily markets will continue to be impacted by the rate environment going forward.