J Scott: The House of Cards Is Going to Fall · On The Market · Radar

Interest Rates and Inflation Expectations1:45 – 6:14

1:45

I am excited to talk to you because I just, I'll tell you honestly, my like economic anxiety personally is rising.

1:55

Do you feel the same way?

1:56

Let's just start there.

1:58

Am I crazy?

1:59

No, I feel the same way.

2:01

And part of it is economics.

2:02

Part of it is real estate.

2:04

I know we're not playing to talk about commercial or multifamily today, but I'm in that space.

2:08

We can.

2:09

Well, I think, interestingly, the same thing that's impacting us over in the commercial side of real estate is impacting us on the residential side of real estate.

2:18

It's also impacting us in the general economy and our daily lives.

2:22

So I think it's all one conversation regardless of what asset class you might be focusing it on.

2:28

And what is that? Well, I think the story today is interest rates.

2:33

As it has been for a while, but it's getting more interesting.

2:36

It's getting more interesting.

2:38

So what we're seeing is somewhat of a loss of control by the Federal Reserve controlling some of those longer term interest rates.

2:47

And basically what that means is the Fed, they never really controlled things like mortgage rates or car loan rates or business commercial debt rates, but they had some influence over them.

3:00

Like the Fed could do things that if mortgage rates got too high, they could kind of put some pressure on to bring them down.

3:06

And it's starting to look like the Fed is kind of losing that influence over the long end of the bond curve, which for those who don't understand that, basically what that means is they're losing influence over like controlling things like mortgage rates.

3:22

And mortgage rates are going up and interest rates in general are going up.

3:26

And it's getting a little scary, to be honest.

3:29

Yeah.

3:29

And so why do you think they're losing control now? I think one of them is a messaging issue.

3:37

Keep in mind that the biggest thing that drives, and there are a lot of things that drive interest rates and bond yields, but the biggest thing that drives interest rates is inflation expectations.

3:47

If people think inflation is going to be high over the next 10 years, then 10-year bonds are going to go up and mortgage rates, which are tied to 10-year bonds, are going to go up.