Each year, the Federal Reserve Bank of Kansas City plays host to a gathering of central bankers in Jackson Hole, Wyoming. Economists from around the world watched this year’s conference, which recently concluded, to see whether the Fed would provide insight into the future of monetary policy. Most Fed watchers expect the central bank to raise the federal funds rate during the first-half or middle of 2015 from its current near-zero level, and they eagerly listened for information they could use to narrow down and solidify their projections. Businesses in numerous industries also kept close eyes on Jackson Hole, due to the impact interest rate hikes will have upon them. This was the case in the senior housing industry, which saw record merger and acquisition activity in the second-quarter, mostly due to low interest rates. Before the Federal Reserve tightens monetary policy by raising interest rates, industry professionals seeking capital to make additional senior housing investments should contact Cambridge Realty Capital to learn more about the many different financing options that it offers for a wide range of transactions.
The Role of Labor Markets at Jackson Hole
This year’s Jackson Hole gathering focused on labor markets, which will play a key role in future interest rate decisions by the Federal Reserve. In her speech at the conference, Fed Chairwoman Janet Yellen noted that, while the U.S. economy and the jobs market have recovered significantly from the depths of the recession, neither has fully returned to pre-recession levels yet. She also pointed out that, due to continued changes in the labor market, it is more difficult for the Federal Reserve to predict when the economy will return to full employment. She reiterated that, although the unemployment rate has fallen faster than the Fed predicted last year, there is still considerable slack in the job market. She supported this argument by pointing to information from the Fed’s Labor Market Conditions Index, which includes data points in 19 different areas, including wage growth, the number of long-term unemployed, the number of part-time workers looking for full-time work, and the labor force participation rate. Ms. Yellen did not lay down distinct markers, instead giving herself and the central bank some wiggle room by stating, “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. Of course, if economic performance turns out to be disappointing and progress toward our goals proceeds more slowly than we expect, than the future path of interest rates likely would be more accommodative than we currently anticipate.”
While this does not provide the kind of clarity many Fed watchers would like, it highlights three main areas that Ms. Yellen and other Fed officials will be looking at as they continue debating the timing and pace of interest rate hikes: the labor market, inflation, and economic growth. Senior housing participants should continue to monitor statements by Ms. Yellen and other Fed officials to gauge when interest rates will increase in order to plan for this eventuality.