Fed Rate Increases and Our Industry
This is more of a rant and personal opinion to hear what others in the know think. Yes, I get inflation has been out of control, but what is the real cause of our current inflationary trend. The Federal Reserve has destroyed demand and made it very, very difficult for investors to cash flow a rental without putting down a ton more cash by raising the Fed Funds rate 11 out of the last 12 times. It's also squashing supply by making it difficult for homeowners (including me personally) to upgrade due to the cost of taxes and interest for a larger mortgage. Private sector payroll growth has plummeted in the past year. While some on the Fed Board are starting to back off of their desire to raise interest rates, there are still other Board members that seem to want to keep raising rates. I think everyone expects them to not raise rates later this month again, but many of the Board members seem to be very open to raising them again later this year. I agree inflation is an issue, but raising rates is treating the wrong issue. In my humble opinion, out-of-control government spending and the printing of currency is the real culprit here. I've attached a chart that our very own Fed puts out showing how much currency is in circulation. When you have that much cash in circulation chasing fewer resources, you get inflation. That's Econ 101. Lowering rates quickly would have a negative impact as well, but the Fed needs to stop it already and let the market catch up a bit. Banks "stress test" since Dodd Frank was enacted in 2010. Raising rates this quickly (550 basis points) when most banks are built to withstand 400 basis points or so is forcing banks to struggle. Just watch when banks start to crumble and politicians point fingers at bad lending practices from banks as the cause when it's really the Fed and government spending that's the culprit. That's my rant, but I thought having a discussion with some of you about the state of our industry would be more enlightening than reading another post about how great some guru's course is. What say you all?
