A Grab-Bag of Inflation, Consumer Spending and CRE Investment

For those who just emerged from their desert-island retreat, the Federal Reserve decided to keep the Effective Federal Funds Rate (EFFR) between 4.25% and $4.5%, which has been the rate since December 2024. At its recent Federal Open Market Committee meeting in June, the Fed also signaled that two cuts this year could be on the horizon.

But Marcus & Millichap Senior Vice President John Chang isn’t buying it. In a recent video entitled “Flat Fed, Inflation Risks and the Durability of Retail Sales,” Chang indicated that he thinks “the Fed doesn’t believe they need to lower rates any time soon.”

Potential Inflationary Pressures Loom

Chang said that part of what keeps the Fed awake at night are inflationary signals from multiple factors, including:

• Tariffs. These haven’t impacted the economy yet. However, Chang said that “eventually we’ll see its impact on everything from cars to building materials to appliances to aluminum soda cans.”

• Oil prices. The recent surge in oil prices is tied to the Israel-Iran conflict. According to Chang, they increased by 20% to about $75 per barrel at the beginning of June.

• Shipping costs. Chang explained that the cost to ship a container from Asia to the West Coast increased by 167% from the beginning of the year to nearly $6,000.

“These inflation pressures will take time to manifest,” Chang said. “But that’s exactly what the Fed is thinking about: What will inflation look like in four to six months?”

Is the Consumer the Savior?

Consumer spending tends to be the hero of the economy, comprising approximately 70% of the GDP. But for consumers to spend, they need jobs—and confidence.

Chang said that “job creation is still relatively sturdy,” consumer debt is declining, and savings are up. Retail sales also increased slightly in May; however, Chang cautioned that this could be due to frenzied buying before tariffs kicked in.

The question here is whether consumers feel confident in spending. “What will likely shape the economy in the second half of the year is whether consumers remain sufficiently confident to keep spending,” Chang observed.

Tying it into Commercial Real Estate

Interestingly enough, amidst the grab-bag of economic confusion, Chang had some positive commercial real estate news. While interest rates might be slow to decline, “the current investment climate still looks solid,” Chang said. He did note that some property types in certain areas could be a little dicey in the second half of 2025, while overall uncertainty could weigh on decision-making.

Still, “for most property types and locations, the performance outlook remains positive,” he said. “That’s why I believe we’re in a comparatively good investment window right now.”