In yesterday’s post we discussed how the nation’s continued economic growth has the Federal Reserve (Fed) thinking about the best way to unwind some of the stimulus measures that it has used to spur the economy during the past few years. There’s no shortage of views on this at the Fed, with its dovish members advocating for a gradual winding down of its stimulus programs and its hawkish members arguing for more aggressive action. Depending whose arguments prevail and how consumers and businesses react to the changes that they implement, there could be serious implications for the economy and its various actors, including senior housing owners, operators, and investors. For example, if the hawks win the day and the Fed decides to raise its benchmark federal funds rate quicker and higher than expected, it could startle investors and lead to decreased asset values, including those for seniors housing. However, if the doves win the day and prolonged low interest rates lead to increased inflation instead of more economic growth, the effect of this would be reduced demand for goods and services, including senior housing. Because of the impact that any changes in monetary policy will have on the industry, senior housing professionals should continue to monitor the Fed’s deliberations so that they can quickly assess what effect its decisions will have on their portfolios and plan accordingly. While the Fed continues this debate, industry participants who would like to take advantage of today’s low interest rate environment to obtain capital for growth or other reasons should continue to look to the successful financing firm Cambridge Realty Capital and the many different programs it offers.
One of the more vocal hawks at the Federal Reserve is Esther George, the President of the Kansas City Federal Reserve. Yesterday we discussed her belief that the Fed should act aggressively to wind down its stimulus measures, and today we will take a look at an opposite view and competing arguments that have been made by Narayana Kocherlakota, the President of the Federal Reserve Bank of Minneapolis. Mr. Kocherlakota recently gave a speech in Boston where he advocated keeping interest rates low for a longer period of time than Ms. George and the other hawks at the Fed would like. Mr. Kocherlakota noted that one of the Federal Reserve’s statutory mandates is to create the conditions for maximum employment, and as of today, job growth still needs to increase significantly in order for this to happen. Mr. Kocherlakota believes that keeping interest rates low for a prolonged period of time will help achieve this much quicker than the proposals that Ms. George is advocating. Furthermore, although he readily admits that unusually low interest rates are typically associated with unstable financial markets that are characterized by overpriced assets and volatility in returns, his speech indicates that he also believes that the possibility of achieving maximum employment by continuing to keep interest rates low is worth the risk of this happening and that government regulations can be implemented to help mitigate this risk. Emphasizing his desire to move cautiously while winding down the Fed’s stimulus measures, Mr. Kocherlakota stated that “The cost-benefit assessment is relatively clear right now. Employment and prices are expected to be quite low over the medium term, in these circumstances, the cost of tightening policy has to be seen as great.”
The Fed’s members will meet later this month and after this meeting we will have a better idea of which side is winning the argument between the hawks and members with views such as Ms. George’s, or the doves and members with views such as Mr. Kocherlakota’s. Interest rates are likely to remain low while this debate continues and accordingly, senior living participants who are interested in obtaining inexpensive capital for growth, acquisitions, or other purposes should contact Cambridge Realty Capital to learn more about the differentfinancing programs it offers.
