Earlier this month, Janet Yellen, the Chairman of the Federal Reserve (Fed), testified on Capitol Hill before the Joint Economic Committee on the state of the economy and monetary policy. Ms. Yellen came across as confident about the future of the economy while also addressing some areas where she thinks it can improve. Her testimony was revealing and provides some additional information on the Fed’s current view of monetary policy.

Ms. Yellen’s testimony before the Committee was generally positive as evident by her statement that “The economy has continued to recover from the steep recession of 2008 and 2009. Real gross domestic product (GDP) growth stepped up to an average annual rate of about 3.25% over the second half of last year, a faster pace than in the first half and during the preceding two years.” She blamed the slowdown in growth that took place during the first quarter (GDP grew at just .1%) on the weather and noted that recent evidence shows that spending on the production of goods and services began to increase once the extreme conditions that the country experienced during the winter ended and the weather began to improve. Ms. Yellen’s optimistic view of the economy was also based on the job gains that have taken place since the recession ended in 2009. Since that time, the economy has created 8.5 million jobs, job growth has averaged almost 200,000 a month during the past 12 months, and the unemployment rate is now down to 6.3%, its lowest level since 2008. Inflation has also remained tame and is currently below the Fed’s 2% target rate. All of these factors are positive and taken together, they point to an economy that is growing slowly but steadily. However, Ms. Yellen did cite a few cautionary notes in some areas of the economy.

Chairman Yellen expressed concerns about the housing market with her statement that “readings on housing activity, a sector that has been recovering since 2011, have remained a disappointment so far this year and bear watching.” Furthermore, while she noted that the unemployment rate has come down, she also expressed concerns over the number of long-term unemployed (i.e., those people that have been unemployed for 6 months or longer) and part-time workers who would prefer to work full-time but can’t find full-time jobs. However, overall Ms. Yellen’s testimony was positive and she appeared optimistic about the future of the economy. This is evident from her statement that “Looking ahead, I expect that economic activity will expand at a somewhat faster pace this year than it did last year, that the unemployment rate will continue to decline gradually, and that inflation will begin to move up toward 2%.” This statement is important for the senior housing industry because if Ms. Yellen’s assumptions turn out to be correct, the Fed will continue to wind down its stimulus programs, which will lead to an increase in both short-term and long-term interest rates. This will raise the cost of borrowing for senior housing providers at the same time that they need capital to expand in order to meet the increased demand for senior housing services that is being driven by the aging of the population. Accordingly, senior living providers that are interested in taking advantage of today’s low interest rates to obtain inexpensive capital for growth should continue to look to the Chicago-based financing firm Cambridge Realty Capital and the many different financingprograms that it offers for their capital needs.

Recent Posts

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Start typing and press Enter to search