After spiking to 40-year highs across the first half of the year, inflation is finally starting to even out. Private sector and industry analysts, however, speculate this may have more to do with improvements in the global supply chain than the interest rate hikes imposed by the Federal Reserve.
John Chang of Marcus & Millichap expects inflation to continue a slow retreat over the next several months and attributes his prediction largely to the fact the average time to ship goods from China is getting smaller.
The Federal Reserve is limited as to tools available to counter inflationary pressures, relying on increases to the federal funds rate and reducing its balance sheets. In its most recent action, the Fed raised rates 0.75% in July. It is expected to raise them another 0.5% in September and to double its “quantitative tightening” program to reduce its balance sheet to $95B/month.
However, because household savings and balance sheets are strong, consumers are not borrowing as much as they normally would to manage higher costs, which minimizes the impacts of rate increases.
Chang says this can be detrimental to investors, as inflation will still remain high and interest rates will go up. However, he noted the impact on commercial real estate space demand will be minimal. He does, however, note that while the market remains strongly liquid, it is experiencing adjustments, as some sellers reduce prices and some buyers reduce leverage. He cites how rising interest rates may affect CRE investment as the most important aspect of the current Fed efforts. (Source)