As central bankers from around the world return home from the Federal Reserve’s annual conference in Jackson Hole, Wyoming, economists are analyzing the speeches for clues on the future of monetary policy. The most scrutinized statements are those by Federal Reserve Chairwoman Janet Yellen, whose speech focused on labor markets.
Fed Chairwoman Emphasizes Unemployment
Chairwoman Yellen acknowledged that both the economy and job market improved since the end of the recession in 2009; however, she reiterated her belief that, due to considerable slack in the labor market, interest rates must be kept low in order to stimulate additional job creation. She noted that the unemployment rate dropped considerably during the past year, in addition to tepid wage growth, high numbers of underemployed and long-term unemployed indicate the labor market has a way to go before it can truly be considered healthy again. While she did state that, “If progress in the labor market continues to be more rapid than anticipated by the Committee or if inflation moves up more rapidly than anticipated, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target could come sooner than the Committee currently expects and could be more rapid thereafter,” she went on to say that, “Of course, if economic performance turns out to be disappointing and progress toward our goals proceeds more slowly than we expect, then the future path of interest rates likely would be more accommodative than we currently anticipate.”
In response to Ms. Yellen’s speech, Michelle Girard, Chief Economist for RBS U.S., stated, “The take-away from this speech is that the Fed has no measure upon which it feels it can confidently base its policy decisions. Thus, ‘monetary policy must be conducted in a pragmatic manner that relies not on any particular indicator or model, but instead reflects an ongoing assessment of a wide range of information in the context of our ever-evolving understanding of the economy.’ In other words, the Fed will continue to monitor incoming information on the labor market and inflation to determine the appropriate stand of monetary policy – which leaves us where we were before.”
Although Ms. Yellen’s speech did not provide Mr. Girard with the information he would have liked, it ought not to come as a surprise. Fed chairpersons are usually nuanced in their public statements, since anything they say can literally move markets and affect economies all over the world. But Federal Reserve bank presidents James Bullard and Esther George both stated they would like to see the Fed raise interest rates soon. Charles Prosser, president of the Federal Reserve Bank of Philadelphia, stated he would like to see rates rise soon as well, but gradually. Dennis Lockhart and John Williams, presidents of the Federal Reserve banks of Atlanta and San Francisco, respectively, also stated they believe the Fed will raise interest rates sometime during the middle of 2015.
Barring any significant change in the job market or economy, it appears the Fed is on pace to increase interest rates during the first half or middle of next year. The implications for business and industry, including for seniors housing, which is experiencing robust M&A and construction activity, are significant. Before interest rates rise and costs increase, senior housing participants seeking capital for acquisitions, sale/leasebacks, and debt refinancing, should contact the Chicago-based financing firm Cambridge Realty Capital to learn more about the many different financing options it offers for these and other purposes.