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Trump Breaks Presidential Precedent, Criticizes Fed For Raising Interest Rates

President Donald Trump openly criticized the Federal Reserve’s plan to continue boosting interest rates during an interview with CNBC — a rare occurrence among his predecessors in the Oval Office. 

In a long-standing tradition, presidents have abstained from getting involved in Fed policy to ensure central bankers have the freedom to make decisions free of political influence. 

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President Donald Trump

Trump told CNBC he “is not thrilled” and “does not approve” when it comes to the Fed’s plan to continue bumping rates for fear that the moves will adversely affect the economy and put the U.S. at a disadvantage when dealing with more loosely regulated centralized banks like the European Central Bank and the Bank of Japan

“I don’t like all of this work that we’re putting into the economy and then I see rates going up,” Trump told CNBC’s Joe Kernen. 

Trump-appointed Fed Chair Jerome Powell increased the benchmark federal-funds rate by a quarter-percentage point to a range of 1.75% to 2% in June.

That was the second move of the year and the seventh move since the Fed started increasing rates coming out of the Great Recession, when the Fed dropped rates to a historically low 0.25% in December 2008. This was essentially the lowest rate possible. 

The goal is to continue boosting rates until the federal funds rate hits a range between 2% and 5%, which suggests a healthy economy.

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Federal Reserve Chairman Jerome Powell.

The raises have come as the U.S. economy continues to expand under Trump’s leadership, with strong jobs growth, steady inflationary movement and a gross domestic product growth rate that is expected to hit 4.5% in Q3

“Now I’m just saying the same thing that I would have said as a private citizen,” Trump told CNBC. “So somebody would say, ‘Oh, maybe you shouldn’t say that as president.' I couldn’t care less what they say, because my views haven’t changed.”

CRE Impact: Diminished Access To Capital

Commercial real estate investors have largely not yet been impacted by the gradual bumps in short-term rates. 

Should officials continue to increase rates at a fast clip, commercial real estate developers and borrowers could be adversely affected by higher lending costs and tighter access to construction financing, which could, in turn, stifle deal volume and further compress margins for investors.

In a survey of 100 U.S. real estate experts conducted by real estate database company Zillow Group, more than half believe that monetary tightening — when the Fed boosts interest rates to make it more expensive to borrow money — will likely trigger the next downturn. About 48% of those surveyed expect that downturn to hit in 2020

“In general, these moves are a function of an improving economic environment whereby inflation is expected to rise. Higher rates will increase the cost of capital, but there is a record amount of fundraising seeking a home in CRE, so we do not anticipate higher short-term interest rates to diminish access to capital,” Cushman & Wakefield Economist and Americas Head Of Forecasting Rebecca Rocket told Bisnow following the June rate hike.

Colliers International USA Chief Economist Andrew Nelson said while rate increases will eventually take a toll on the economy, and commercial real estate as a result, the rate increases must be put into historic context.

“Context is important, as these hikes are rather measured compared with prior economic cycles,” he said. “In the last expansion, for example, the Fed raised rates 17 times in the two years from mid-2004 through mid-2006, with a cumulative increase of 425 basis points. But even then, the economy still ran hot for another two years into 2008 as the impacts of rate hikes take time to work through the system. 

“So the recent rate hikes will have limited immediate impact on the economy and property markets. But expect the economy to start cooling next year as higher interest rates begin to slow corporate borrowing and consumer spending — just as the fiscal stimulus from the federal tax cuts and spending hikes begin to fade.”