July 10, 2023

Welcome to the first edition of a new weekly feature in the Connect CRE National newsletter. Each Monday morning, we’ll provide a look ahead into the week or weeks ahead for commercial real estate from a national perspective.

If the Federal Reserve’s meeting calendar for the policy-setting Federal Open Market Committee (FOMC) were more predictable, we’d expect to see the FOMC meeting this week and issuing a statement on Wednesday, July 12—roughly half an hour after CRE economist Peter Linneman concludes his quarterly appearance on the Walker Webcast. That would assume that the FOMC meets at a fixed time each month, so a July 11-12 meeting would occur exactly four weeks after the June meeting.  

But that’s not how the FOMC works, although the 2023 calendar is consistent with the 2022 version. Instead, it will meet on the 25th and 26th of this month and then not again until Sept. 19-20. This means that Dr. Linneman will have the spotlight on Wednesday, and while I’m not going to be presumptuous enough to try second-guessing his latest forecast, I can provide some reasons for expecting another rate hike two weeks from now.  

First, there’s the fact that the Fed didn’t rule out the possibility of more increases to the federal funds rate, despite holding the rate at a target range of 5% to 5.25% during its June meeting. Individual members of the FOMC indicated that they expect anywhere from one to four more rate hikes before 2023 is over.  

Second, look at the employment numbers. A June jobs report in which 209,000 positions were added looks disappointing only in the context of the greater monthly gains seen earlier this year. Meanwhile, the jobless rate held steady at 3.6% and initial claims for unemployment benefits continued to fall below the threshold that would suggest a slowdown in employment growth.  

“An anticipated rise in layoffs on more restrictive monetary policy is not yet appearing in the data,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, told Reuters. “A tight labor market will keep the rate path on an upward trajectory, until policymakers see a material rebalancing in supply and demand.”  

Third, consider the inflation rate. The most recent data put it at 4.05%. That’s down more than 50% from 8.58% a year ago, but still above the long-term average.  

It’s also a long way off from the 2% inflation rate that the Fed has identified repeatedly as its goal. We’ll know more on Wednesday, when the inflation figures for June are released.