Why the Fed Is Not Going to Raise Rates and Why You Should Buy More Real Estate

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In this video, we'll provide an unorthodox view on the Fed's ability and intentions to raise interest rates and reduce their balance sheet.

While the Fed has been telegraphing a series of rate hikes, and plans to run off and reduce their enormous multi-trillion dollar balance sheet, we actually believe that it will be extremely difficult for the Fed to actually tighten financial conditions.

While many market commentators simply believe that the Fed will be able to do as they say, and that the tightening might lead to some sort of recession, we actually believe the Fed doesn't have much in the way of options to tighten and raise rates.

That's believe debt-to-GDP is so high this time around vs the 1970's that raising interest rates isn't a viable option. If rates are allowed to rise, then interest expense would quickly eat up most if not all of the Federal government's budget, which would be unacceptable.

Keep in mind that in the 1970's Fed Chairman Volcker was able to be hawkish and raise interest rates to the 20% range because debt-to-GDP was much lower, i.e. ~20% vs over 100% today.

As a result, we actually think the situation is more comparable to that of the post-WW2 era where the US had built up a lot of war debt, and debt-to-GDP was similarly high. What happened then was yield curve control, where the Fed caps yields at a certain rate, then commits to unlimited QE (i.e. bond purchases) to keep government bond yields at a certain low rate. Concurrently, inflation was allowed to run very hot to burn away the national debt.

We believe that is a much more analogous and likely scenario vs the 1970's. As a result, we believe strongly that inflation hedge assets such as real estate will perform well in such an inflationary environment.

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Hauseit Group LLC, Licensed Real Estate Broker
Tel: (888) 494-8258 | https://www.hauseit.com
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