release edition [075]

read time [8 minutes]

Welcome to The Multifamily Download, a weekly newsletter where I provide institutional insights to help you build an exceptional Multifamily career.

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Today at a Glance:

• Fed: The Big Dilemma
• Markets: Selecting Winners
• Weekly Listen: Grant Cardone

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The Fed's Dilemma

New Fed Chair Kevin Warsh spoke just 130 words in his planned FOMC remarks this past week, and his brevity was a noticeable departure from previous chair Jerome Powell's 300+ word monologues.

But there was one line from Warsh's remarks that stood out to me:

"Trends are more important than data points"

I can't help but wonder which trends the Fed will be watching going forward.

With Headline inflation at 4.2%, many are wondering how the Fed will elect to manage the short end of the curve in the months ahead, especially if the Straight of Hormuz doesn't have a clear path to reopening.

One interesting dynamic that I've always found interesting is why or how inflation and interest rates have become interconnected in such a causal ("cause-effect") manner.

My question: If there have been periods of low rates with low inflation, which there have been, then why are higher rates the consensus cure to curb higher inflation?

History shows us that interest rates and inflation are not causal.

That is, low rates don't necessarily lead to inflation, and high rates don't necessarily lead to deflation.

There are many periods in history where America has had various combinations of inflation and interest rates.

Let's examine a few such periods:

A. High Inflation + Low Rates

This scenario occurs when monetary policy is loose, or external shocks drive prices up while rates remain low, often to stimulate growth or due to policy lags. The COVID era is a great example of this combination of inflation and rates.

The world's supply chains shutdown, and while rates were low, it was fiscal policy (not monetary) that created inflation, because trillions of dollars were printed and handed out to stimulate an economy that didn't need stimulus, but instead it just needed time. So, if COVID was the match then money printing (fiscal policy) was the gasoline, and interest rates (monetary policy) were used as the water.

But, if fiscal policy (emergency stimulus) created the COD era inflation, why wasn't fiscal policy used to subdue it?

In short, fiscal tools such as raising taxes and lowering Government spending is a bad look for political candidates.

B. High Inflation + High Rates

This is the classic scenario where the Fed raises rates to combat persistent inflation, often associated with demand-pull or cost-push factors. In 1979-1982, under Fed Chair Paul Volcker, the Fed aggressively raised rates to curb runaway inflation caused by oil shocks, high government spending, and entrenched inflation expectations.

Again, the problem wasn't inherently consumers or prices, but fiscal policy of running deficits and blackswan events like oil shocks that perpetuate a future inflation fear that causes market participants to front-run these hypothetical inflation expectations by proactively raising prices, whereby inflation fears become a self-fulfilling prophecy.

This is why Milton Friedman once said, "Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output"

C. Low Inflation + Low Rates

This scenario reflects a stable economy or post-crisis recovery, where the Fed keeps rates low to support growth without triggering inflation.

The post-GFC era is a great example of this, when CPI inflation averaged just 1.8% from 2010 to 2019 and the Fed Funds rate was nearly 0% from 2008 to 2015.

Low demand, high unemployment, and global factors (low oil prices) kept inflation in check, while low rates encouraged borrowing and investment without overheating the economy.

When the market can grow on it's own (without excessive stimulus or government intervention) then it is possible for inflation to remain tame alongside low interest rates.

D. Low inflation + High Rates

This less common scenario can occur when the Fed tightens policy preemptively or in response to non-inflationary pressures, such as asset bubbles or currency concerns.

This was the case in the late 1990s, as CPI inflation was stable at 2–3% from 1997 to 2000, but the tech bubble was overheating.

In an effort to cool the hot stock market, the federal funds rate rose to 6.5% by May 2000, the highest of the decade, while Core PCE inflation remained around 1.5–2%.

The Fed’s rate hikes targeted asset price inflation (tech stocks) rather than consumer price inflation, showing that high rates can coexist with low CPI/PCE inflation when policy addresses specific economic risks.

Inflation has been the focus in this recent post-COVID era, and price stability (i.e. inflation) just re-entered the conversation in a big way by Fed Chair Warsh.

Even so, I'm not convinced that 'higher for longer' is the right approach based on the structural forces at play in today's U.S. economy. And I don't think that Warsh thinks so either.

The Fed, whether they'll admit it or not, kept rates too low for too long in the post-GFC recovery era (point C above), and allowed the economy to become too reliant (addicted?) to cheap money and 'risk-free risk' thanks to ever-inflating asset values (stocks, homes, CRE, etc).

I recognize that the Fed is in a tough spot today, but so is the U.S. economy.

Total non-farm employment in 2025 was abysmal, and 2026 has been off to a bumpy start.

It is my opinion that, all else equal, a capitalist free-market economy should have the ability to control it's own destiny (via lower rates), versus being restricted by outside forces (via Fed policy) that mechanically suppresses future growth (via higher rates).

Whether they like it or not, the Fed has a big dilemma that's about to unfold.

The three choices ahead as I see them:

(a) Raise rates to achieve price stability and the ever-elusive 2% CPI at the expense of improving labor markets.

(b) Lower rates to support job creation and economic stimulus at the risk that Core and PCE inflation reignites.

(c) Hold rates through the Iran War to more clearly evaluate inflation today net of the recent oil shocks.

The Fed recently opted for Option C, and they did so unanimously, but as Kevin Warsh implements his five task forces, it will be interesting to see how this refreshed approach to data monitoring impacts the Committee's approach to policy, if at all.

How do you think interest rates will look at year-end?

Market Selection

Whether you're an individual owner, syndicator, or institutional operator, every investor can (and should) take a data-driven approach to market selection.

This section aims to provide a glimpse into how I think about the market selection process.

There are several key drivers to be carefully considered when selecting markets, including (but not limited to) the five outlined below. I've included several questions for each that may be helpful.

P.S. If you'd like to incorporate a data-driven approach for evaluating markets, emerging trends, and the broader economy, then you'll enjoy the 350+ resources inside of The CRE Research Vault.

Below are the specific questions to answer or quantify before investing in a specific market.

1. Supply

How much of the existing Multifamily stock is under construction on a percentage basis? How does the future pipeline look? How difficult or easy is it to build in the market? How quickly can new product go from permit to lease up? How has the market performed in the past (occupancy, concessions, and subsequent rent growth) when large amounts of supply (i.e. >5% of stock) were introduced? How likely is it that elevated levels of supply may deliver during the foreseeable future?

2. Demand

How large is the Metropolitan area? Are there any immediate paths of progress, and if so, where are they? What is the YoY rent growth and population growth? Are new residents inclined to rent apartments or buy a home, and why? What are the age tranches of the population, and how might those age cohorts help or hinder rental demand in the coming years?

3. Job Growth

What types of jobs are available in the market? What type of employers are moving into, or leaving, the market? What is the quality of those jobs? How well do they pay? Where in the submarkets are their offices? Are the jobs white collar, blue, or a mix? What is the likelihood that A.I. will displace or disrupt the jobs at those companies in the near term?

4. AMI & SFR Prices

What are the area median incomes (AMI) in the market and target submarkets? How do those incomes compare to average rents? What are the rent-to-income ratios? How much does a single family residence cost to own in the market on a monthly PITI basis? What is the delta to owning a home versus renting an apartment?

5. Political Climate

What is the political climate and what are the resulting potential risks as a Multifamily owner? How likely is it that the political climate remains unchanged? Will those policies lead to more housing or less over the foreseeable future? Will those policies make being a landlord easier or more challenging over the foreseeable future? Would you rather have supply risk or political risk?

Real Estate investing is both an art and a science. If the art component is largely dependent upon experience, then investors without extensive experience would be well served to start by getting the science component right.

Reducing the number of variables minimizes blindspots and increases the chances of success.

Weekly Listen

This week's listen is "No Vacancy" hosted by my friend Taylor Avakian and featuring Grant Cardone, in an episode titled "Grant Cardone Told Me To Leave Los Angeles NOW!"

Cardone makes his case for why he left California for Florida, what he thinks high-tax, high-regulation states do to operators over time, and where he's placing capital.

You don't have to agree with all of it, but the Grant's perspective on where people and money are moving is worth the listen.

You can listen to the full episode here.

Wrap Up

That's it for today. I hope you found this edition of The Multifamily Download insightful.

Consider sharing this link to The Multifamily Download with a friend or colleague.

Your feedback is appreciated, so feel free to reply anytime.

Thanks for reading. See you next week!

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