QE2 Implications on Real Estate & BusinessNovember 15, 2010
The Federal Reserve announced its second round of Quantitative Easing, a.k.a. QE2 on November 3. According to our Cassidy Turley Research, the hot topics impacting commercial real estate by this action won’t be the specific jobs created, the interest rates themselves or disinflation, but what may come as a result if QE2 has its intended effect.
If an increase in jobs is caused by QE2, it may bring occupancy rates and consumer confidence up. While interest rates remain low, lending conditions may begin to loosen making property purchases more frequent. And if mild inflation causes upward pressure on rents, there is a chance that value-add assets will be in greater demand. While these effects remain to been seen here at home, the anticipated measures have already spurred increased foreign demand for U.S. real estate because of the weakened dollar.
However, according to a recent article in CFO magazine, Richard Fisher, President and CEO of the Federal Reserve Bank in Dallas, believes the good intentions of the Federal Reserve may not have the desired effect. He says companies are shying away from borrowed funds, not because they aren’t available, but because companies do not view expanding their operations with an increased workforce as bringing a profitable ROI. Instead they are looking inward at ways to increase productivity to be better prepared for the future.
As I talk with companies, a few of them are growing but most continue to look for ways to save money and preserve the tight margins they have been forced to live with during the downturn. Their actions are mirroring those of consumers. Everyone is tightening their belts in case profits aren’t there in the future. It’s a vicious circle. Consumers aren’t demanding more products and services and companies aren’t planning to increase their workforce to create more goods and services without that demand. In essence, anyone making money, whether corporations or consumers, is still saving for the rainy day we’ve most recently endured.
I tend to agree with Mr. Fisher who believes that unless Congress and the President provide real incentives for businesses to “work the money the Fed is printing” the Fed’s actions are simply a “leap of faith.”
To read the complete Cassidy Turley paper and CFO Magazine Article, please click on the links below.
Cassidy Turley Paper: QE2: Implications for Commercial Real Estate
CFO Magazine Article: QE2 Won’t Help Business: Fed Banker