Biggest macro risk to the future investment environment?

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From Ben Breslau
Managing Director
Americas Research

In a recent survey of institutional real estate investors conducted by Jones Lang LaSalle, monetary policy came out on top as their number one concern followed by the U.S. budget and political situation. 

This highlights the multitude of “policy risks” facing us in the current cycle. The Fed surprised everyone by not tapering asset purchases after it was widely expected that they would do so at their September meeting. While the markets rallied as a result, the miss on expectations, and the upcoming change of Fed Chairman (it’s likely to be nominee Janet Yellen) have created more uncertainty and confusion about policy and interest rates. In an interest rate sensitive sector, the real estate community will continue to watch the Fed actions closely, though we expect moderate rate increases as opposed to any spikes in the next few years. 

In the spotlight today is yet another national budget crisis, a government shutdown, and debt ceiling debate that is pushing the limits of acceptability. The current government shutdown, as long as it’s resolved soon, won’t derail the economy. If, however, the debt ceiling debate ends badly and the U.S. defaults on its debt this combination will have serious economic repercussions. Even if we avoid default, the gridlock and polarization in Washington could further shake consumer and market confidence, and leave the U.S. at greater risk of losing its remaining AAA credit ratings.

This government has consistently argued to the brink of recent budget and debt ceiling deadlines and then “kicked the can down the road.” We expect that result again this time after some high drama and with only a short term solution in the end.  That means even as the underlying economy is starting to show signs of life and potential for higher growth, we’ll likely be right back in this situation again before long.  No wonder policy risks ranked highest in our survey of concerns.  It’s clear that investors are watching closely.

-Ben

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