Inflation? What inflation? Crude oil prices have been cut in half, iron ore prices have absolutely been pummeled, copper has seen better days, and the last time I checked the value of my house, it is still not up to the price I bought at.
What inflation, I say?
For those that may not be familiar with the so-called dual mandate of the Fed, here it is: “The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.”
The Fed’s objectives essentially boil down to keeping inflation at ~2% and targeting normalized unemployment in the range of 5.2%-5.5%, though no such fixed goal exists.
But let’s face the facts. Prices have been going down. There’s no real threat of inflation. If the Fed raises rates, and this attracts more foreign capital investment, the dollar will only strengthen, and dollar-denominated commodities like oil will only keep falling. Hasn’t oil fallen enough? The January payrolls number, released February 6, completed a three-month period that was the strongest since 1997. Unemployment is currently at 5.7%.
Though perhaps not completely the cause, the Fed is overseeing an environment where input prices are low and employment is being maximized. Why are we talking about rate changes?
From my perspective, there’s no reason to alter the status quo, especially with commodity and housing prices where they are. The market needs to understand that we’re still managing through the aftermath of the Financial Crisis, and while the Fed may test the waters with a slight rate hike in coming periods, it likely won’t engage in any meaningful tightening anytime soon, in my opinion.
[I’m not an economist though. I’m actually correct sometimes (this is supposed to be funny — you should laugh).]
REIT investors are overreacting. This doesn’t mean, however, they won’t continue overreacting (selling shares) into weakness, making matters worse. In case you missed the re-publication, please have a read of REITs and Interest Rates here.
It’s quite an informative piece on the topic. Please check it out.
REITs – Healthcare: HCN, HCP, HR, LTC, OHI, UHT, VTR
REITs – Retail: DDR, EQY, FRT, GGP, KIM, MAC, O, REG, SKT, SLG, SPG, SRC, TCO