M7_ Jerome Powell Walks Into a Wyoming Barbershop and Exclaims, “It's time for a cut.”

Unlike his predecessors, Jerome is not known for being a wordsmith. He opened Jackson Hole after cross-examining previous monetary policy and hanging it over the edge like Suge Knight. He's got all the answers he needs and is ready to cut something.

REAL ESTATE, INTEREST RATES, AND ECONOMICS

Martin O. W. DuPain

8/26/20243 min read

The fresh air of Wyoming has its benefits. Fed Chairman opened the Jackson Hole Economic Symposium and didn’t mince words. This year's topic is Reassessing the Effectiveness and Transmission of Monetary Policy. “The time has come for policy to adjust. The direction of travel is clear.” Said Jerome.

The real estate sector led the gains in the S&P 500, and traders have begun to price in rate cuts as high as 50 basis points (half a percent) at the September meeting and additional cuts in the following two FOMC meetings of 2024.

Key Insights

This crystal clear signal to the markets that favorable weather is on the horizon could spark a rush to well-priced and distressed real estate assets. This is welcome news, considering the uncertainty surrounding the upcoming presidential elections.

However, some argue there is insufficient historical data to imply any significance of the impact of elections and short-term interest rate changes on real estate. I would push back firmly with anecdotal evidence and a few notes from Jonathan Miller of Miller Samuel Inc. titled Election Year Home Sale Blues (July 1, 2024); Home sales went up after 9 of the last 11 presidential elections, new home prices went up after 10 of the last 11 presidential elections, and mortgage rates decreased leading up to 8 of the last 11 presidential elections. In addition to Mr. Miller’s finding, he notes, “We are at peak misery as entire real estate-related industries lie dormant waiting for Fed rate cuts. As I said before, even a modest 25-basis point cut is expected to release more than two years of pent-up demand.” - Outsized Rate Reactions Expected: The First Cut Is The Deepest (June 21, 2024)

In Conclusion

Jerome, Jerome. The metronome. I could play the piano by that heartbeat of his.Gattaca (1997)  a dystopian sci-fi movie in which a utero-born man must fight for his dream in a deterministic world where eugenics, via 'vitro' birth, has created a world free of disease, unwanted traits, and uncertainty. Though one could argue long after all of us are gone, Jay Powell had the ideal beat for the economy to write and play its post-pandemic comeback album, soon to be a classic, in my opinion.

Jerome, with an estimated net worth of $112 Million, is the wealthiest chairman in the Federal Reserve's history. Simultaneously, he is among the least educated, holding only a JD from Georgetown in a bureaucratic sea of econ Ph. D.s. However, from his time as a partner at Carlyle Group, he knows what gives money volume and velocity better than his peers, past and present.

Almost two years ago, during my morning call drive (I regularly made 100+ calls before 1:30 p.m.), I had a call with a large NYC landlord about the impact of monetary policy on a day that the Fed minutes would be released. When asked if I expected a cut, I said, "We would see 5 -5.5% interest rates before any cuts. You should make plans for that world."

“You should take Jerome’s job.” The landlord replied.

I responded, “I wouldn’t take it for any amount of money. I would rather be a garbage collector.” The Englishman inside peaks through the blinds when asked how I really feel.

He ended the call by saying, “Have fun being a garbage collector.”

He failed to hear the shrouded sentiment in my response that “[Jerome] never suffered from the routine discrimination of a "utero", a "faith birth" or "In-Valid" as we were called. A "Valid", a "vitro", a "made man", he suffered under a different burden. The burden of perfection.Gattaca (1997)

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