ULI 'TRENDS' CONFERENCE
Brice Wallace
The election is Nov. 5. The way Tim Mahedy sees it, the only thing that will prevail is a volatile economy.
Speaking at the ULI (Urban Land Institute) Utah “Trends” Conference, the CEO and chief economist at Access Macro stressed that global forces — climate change, geopolitical instability and domestic political strife — are reshaping societies and causing an ever-shifting world. They are prompting economic and market volatility that is here to stay, with more economic shocks.
That volatility is leaving the Federal Reserve more reactive, which itself leads to economic volatility and uncertainty. Policymakers are unsure what to do and when to stop, and the markets are reacting to every single economic data point that is released, he said.
“It’s more volatile,” he said. “You have more ups and downs today in the market than you’ve ever had before,” with the markets trying to figure out what those shocks mean to the economy.
Worse, the Fed has no control over those three forces but nonetheless will try to react accordingly. “They still have to do something. They’re a policy institution,” Mahedy said.
The overarching question going into the election is whether the economic fundamentals are stronger now than prior to the COVID pandemic. If the answer is yes, the Fed will not need to have interest rates where they were in 2019 but that could lead to a reignition of inflationary pressures. If the answer is no, “then they need to get moving and get moving fast” to lower rates, he said.
“If you go down that [latter] path, you’ve got to cut and you’ve got to cut soon, and risk on that side of the decision tree is a recession. The risk is they don’t cut fast enough and we end up causing a contraction,” he said.
The dilemma for the Fed is “how fast and far do they need to drop interest rates?”
Mahedy said no one should expect the Fed to “go back to zero” rates. He thinks a more likely level is 3.25 percent to 3.5 percent, likely to settle there sometime next summer.
Meanwhile, core inflation is likely to stall out this year at about 2.7 percent “after we’ve just lived through a four-decade high in inflationary pressure,” he said. Despite beliefs that the worst of inflation is behind us and the economy is fantastic, “we are not at the bottom yet” regarding inflation. “We are hovering at this weird plateau.”
“Just keep in mind, over the next couple of months, inflation is probably not going to drop. … No matter what, we’re going to have high inflation, and then at the start of next year it plummets almost irrespective of how much the economy puts their foot on the gas.”
In a rare mention of the presidential race, Mahedy said the Kamala Harris economic plan would add $1.1 trillion to the national deficit over the next decade, while Donald Trump’s would add $4.1 trillion. Neither will tackle the structural issues with U.S. fiscal policy, and fiscal policy is “wildly different in both proposals and unclear in both proposals,” he added.
The U.S. has avoided a recession because the number of new business formations “exploded” after the COVID pandemic, he said.
“Why does that matter? It’s because small businesses have to innovate. They’re breaking into a new market, [or] they’re defining a new market. And either way, you have to work with fewer resources. They’re very innovative. So, small-business growth means more economic productivity,” he said. “This is likely the reason, or a big part of the reason, we have not even hit a recession.”
As for Utah, business formations have, relatively speaking, occurred outside Salt Lake City, with growth occurring in the southwestern part of the state and the Ogden area. The office sector of commercial real estate is in troubled times in the capital city but could rebound as companies desire to have more employees work in the office.
“This should be encouraging, in some sense,” Mahedy said. “It may not feel like it right now, but this should be encouraging for the economy, for everybody in this room who’s looking at commercial real estate.”
So, in a world marked by volatility, what are business owners to do? Among his bits of advice are for companies to focus on the right statistics when conducting their forecasts. Looking at traditional numbers may leave business owners feeling “whipsawed,” he said. Worse, artificial intelligence may base projections on bad numbers. Business owners would be better served focusing on macro data, he said.
But rather than rely on stats, business owners should become storytellers. A company’s story is more important than statistical forecasts, and owners should consider “where in your story can things go wrong?”
He also encouraged owners to “nurture a growth mindset.”
“If you’re a storyteller and if you focus on the right stats,” Mahedy said, “that should give you some insight into where you may be able to play, where somebody else is getting a little indigestion over. … There will be a place to grow. There will be an opportunity.”