Once upon a time, politicians held their tongues and the Federal Reserve Board’s Open Market Committee (FOMC), in a show of solidarity, appeared to rubber stamp central bank decisions. But this universe seems to be slipping away.
At the September FOMC get-together, three members were open dissenters when the committee publicly announced its decision not to hike rates at this time. And during the first 2016 Presidential Debate, the Republican challenger bizarrely accused the central bank of using monetary policy to aid his political opponent.
“That dissenting central bankers have become more openly critical of monetary policy decisions is not the shocker it once was. But accusing the Fed of politicizing the Presidential race is a zinger that will not sit well with an institution that wears its neutrality as a badge of honor,” says Cambridge Realty Capital Chairman Jeffrey A. Davis.
“Being called out like that with 78,000 million viewers looking on is something that has never happened to the Fed in a political campaign before.”
Cambridge is one of the nation’s leading senior housing/healthcare lenders, with $4.5 billion in closed transactions. Mr. Davis points out that an article by the Editorial Board of the Washington Post suggests a more reasonable explanation for why the Fed has been unwilling to push rates higher.
It has now been almost nine years since the Fed began the unconventional policy known as quantitative easing, with the goal of stemming financial panic and restarting economic growth. And it has been seven years since then-Fed Chairman Ben Bernanke assured the public that the Fed had thoroughly studied the matter and could eventually unwind the massive bond buying program in a smooth and timely manner without setting off inflation.
“But the Post reports the Fed is learning that it’s much easier for a central bank to get into unconventional policy than to get out of it,” Mr. Davis said.
According to the Post editors, this is not necessarily a criticism; to the contrary, Mr. Bernanke’s policies contributed mightily to the recovery, now seven years old, which has begun to produce not only jobs but also rising incomes. Furthermore, the current Fed’s reluctance to tighten monetary policy reflects a decidedly benign fact: There is practically no inflation to fight and little risk that it will get out of hand in the near future.
On the other hand, those arguing for a rate hike cite the potential for prolonged low rates to sow instability, whether through a bubble in commercial real estate, damaged insurance company finances or some other means.
In a recent blog post, Mr. Bernanke wrote that new research suggests it may not be better to shrink the Fed’s balance sheet back to pre-crisis dimensions after all. “Maybe this is one of those cases where you can’t go home again,” he suggested.
“Where this leaves the rest of us remains to be seen. But there doesn’t appear to be anything on the horizon that will negatively impact the cost of borrowing for senior housing/healthcare owners and operators any time soon,” Mr. Davis said.