This week’s discussion focused on Federal Reserve structure, rate trajectory, and what both imply for capital markets. While 12 members formally vote at each FOMC meeting, influence extends beyond the vote count. Regional presidents participate fully in debate, and the Chair’s power derives more from credibility and coalition-building than formal authority. Recent meetings have been operationally uneventful, reflecting the Fed’s bias toward gradualism and its preference to avoid signaling distress. However, the arithmetic is increasingly clear: inflation has normalized toward its long-run pre‑COVID range, while the effective policy rate remains meaningfully above a reasonable neutral level. Under that framework, multiple cuts this year are mathematically defensible. The debate is no longer about direction, but about pace and magnitude.

For real estate and private markets, the sequencing matters. Lower short-term rates in a stable inflation environment compress cash yields and push capital outward along the risk curve. Debt markets typically normalize first; equity follows as underwriting math begins to clear required return thresholds. The labor market backdrop reinforces this transition: hiring has slowed, but layoffs remain contained, suggesting caution rather than contraction. If rates adjust as the math implies, the capital cycle is positioned to restart in rhythm — rate relief, debt normalization, equity re‑entry, then acceleration. Two years from now, the conversation may center less on capital scarcity and more on renewed capital formation.

Adam

Peter, welcome.

Peter

Nice to be here.

Adam

We’ll talk about the new Fed chair in a moment, but before jumping into that, it'd be good to level set for the audience and summarize parts of the Fed that are important for this conversation. And there may be pieces that folks don't know about.

So as a Fed 101 crash course, there's 12 people that vote every time. There are seven governors. There's the New York Fed president, just because that's the financial hub of the U.S., then there's a selection of four regional presidents that vote. Governor terms are 14 years. So one of the seven governors falls off every two years, and that's intentionally set to help maintain political independence, to cross presidential administrations, et cetera.

And the Fed chair, who right now is Powell, is one of the governors. And he'll serve a four-year term as chair, which is part of his 14 year total term. That's a renewable term. And it is tradition that after somebody is done with their time as chair, they leave their seat as a governor, but it doesn't have to be that way.

Peter

I'd add two things, Adam. One is that it is not unusual that a governor does not serve their full term. They're able to serve the full 14 years, but I would guess the average term they actually serve is more like eight years. They move on to other things in life.

It's a little less like the Supreme Court in that way where you stay until you're done. Probably because finance is such a remunerative area. So there are more governor positions that open up vs. one every two years. Also, about presidents of the Fed: they turn over because they're like any other CEO.

Secondly, you mentioned the 12 voting members, but the Fed presidents - the regional presidents that are not voting at that time - participate fully in the discussion of rates. So it'd be like even if Dan can't vote, he can try to convince us, and he's a smart guy, and he's an articulate person.

And so it's important to understand that it is more than just a room of peers, and not all peers are equal. And I'd add something that was implicit in what you said. The Fed chair, like the chair of any body, carries an outsized weight, but it's just one vote when it all is said and done.

Adam

Powell may be different from his predecessors also; his approach has been much more, “I want to get agreement.”

Peter

Yes. That's a philosophy and there's a basis for it. But on the other hand, dissent is a really good thing as well. It'd be like, would you want a Supreme Court where every decision is unanimous? And my gut is no, because the dissents sends real signals. Often dissents end up being more important than the decisions. Yes, you want consensus, but it's not like dissent is evil.

Adam

Let's shift over to what's been happening. Last time we talked, the prediction was no rate cut and that’s what happened.

Peter

The recent meeting was a yawn. I think it was pretty obvious that would happen after cutting. They did this now two years in a row where they back loaded their cuts into the year. So the first part of the year, just operationally, they don't want to send a signal of panic. Maybe they should, but that's a different question. They're a body that way. So it was a yawn.

And my guess is the next meeting is a yawn and then it gets interesting. It's not a yawn in the sense the discussion isn't there, but the view is we can wait another month or two or three for 25 bps. I happen to disagree with that view, but I understand that view.

Adam

The news cycle is going to focus on the nominee for the new Fed chair, Warsh. He's publicly called for a regime change at the Fed. And he was, interestingly, a president before. Maybe we start there.

Peter

Vice chair, he was a vice chair and was a governor.

Peter

And he didn't stay the full 14 years, right? He went off and that's very typical, or not untypical is probably a better way of saying it.

Adam

I know he was considered a rate hawk at the time and may have changed that position. He was a governor from 2006 to 2011, so during the GFC.

Peter

Well, I never viewed him as a rate hawk. He was a rate hawk at that moment in history.

That moment in history, if you go back and remember, that's when we had negative rates in Europe, right? And, you know, people in Europe were floating long-term bonds at minus 2%. And something like 30% of all sovereign debt in the world had a negative rate. And it was a bizarre situation where the rates had gotten set way too low.

And in a world where rates are way too low, he was arguing for higher interest rates to better allocate capital. I was arguing for higher rates. He was saying we need higher rates but that's because they were abnormally low. It is not surprising that he's saying rates are too high in a period where they're abnormally high relative to inflation.

It would be like saying, gee, we went back and read Lineman Letter 15 years ago and you were saying “raise rates, raise rates.” And now, you political hack, you're saying “cut rates, cut rates.” Well see what I was saying. They were too low. They were distorting capital allocation and slowing growth. And now they're too high and distorting capital allocations and slowing growth and distorting capital markets. Those are not inconsistent positions. And I see him pretty much in that camp.

Adam

So as you look ahead at his first months in the chair seat, give me the bounds of what you think he'll do, worst case scenario to best case scenario.

Peter

So I don't know him personally. But look, you don't get to where he is without having some sense of how to manage an audience and to not try to do everything in a day and so forth, right? I don't know what he'll do in his first month. I think he'll argue for a 50 basis point cut. That doesn't mean he'll vote for a 50 basis point cut. I would bet he votes for a 25 basis point cut, but he's going to also be interested in the long term of building a consensus.

Daniel

There's so much press about the tiff between Trump and Powell and then there's so much press on the new Fed chair and we have a cultural urge to look at these people as authority figures and believe that what they say really matters. But I don't understand how much power the Fed Chair has. My sense is Powell will stay a voting member, does he still have power?. I know the Fed chair has outsized influence, but how much really?

Peter

You've been in lots of meetings, whether it's a corporation setting or a community setting or your local church or your local charity. The chairman is as powerful as he or she is respected. And they're as powerful as they are articulate and reasoned.

You've seen people who are very articulate, very reasoned. They know when to call the vote. They know how to line up who speaks when, all those little skills. I'm assuming Warsh is pretty good at that given his track record and his influence will grow over time in that regard.

In the beginning, it's going to be rocky, like for any new CEO or any new chairman. Yes, he knows a lot of the people, but he doesn't know all of them. He may not like some of them. He may love some of them. It's going to be no different than any other dynamics of a new leader in a meeting.

Daniel

Now that he's named and confirmed Warsh, once he's in, he’s in right? Regardless of how Trump feels about him, right?

Peter

Well, I'm not a legal expert. You may recall that last year Trump was asserting, and you never know if he was asserting it with seriousness or not, that all administrative positions serve at the pleasure of the president. I'm oversimplifying what he said but I think it's fair to say that the delivered jurisprudence is Trump can try to make his case.

So, you're correct. Trump can't say “do it or else.” But the president can still spea, and have influence, I'm sure.

Adam

Do you do you think Powell finishes his term, which I think is up in May 2028?

Peter

Not a chance. I think there's zero chance. Again, I don't know Powell, but let's just go through the math.

I don't know what a Fed governor makes, but $282,000 or $321,000, you can look it up, right? It's a high level government position that makes probably less than the president. Let's say it's $300,000 or even imagine it were $500,000.

Powell resigns and he can give speeches for what, $200,000 a pop? He can do one of those a month as a non-fed chair? I think there's a cooling off period before they can go work for a financial institution. But you know, out there is some fund or some bank who is happy to make him a vice chair, because would you rather show up at a meeting where you're trying to close a big deal with Peter, Adam and Dan or the former chairman of the Federal Reserve?

That's obvious. I'm not saying he's driven strictly by money or he would have never taken this position.

There are three of us in this conversation and I think it's fair to say none of us would stay on very long given the realities of the opportunity set.

Adam

And so the signaling, the signaling that he may stay is the press trying to make a story where there isn't one? Or do you think he's considering?

Peter

He may not resign the first day. But I'd be surprised if he finishes the year.

Adam

The NMHC conference was last week and the Mortgage Bankers Association conference is this week. Lots of opinions coming out of there about what the Fed should do and interest rates in general and their impact on real estate. What’s the basic math they’re doing?

Peter

Lower short rates means I have to go search for yield. And obviously lots of people are already searching for yield, but every rate cut in a stable inflation environment means I have to go search for yield. And I have got to find it somewhere.

Some of it I'm going to find in longer bonds but I'm going to find most of it in mid market equities and private equity and lending to real estate and so forth. I wasn't at NMHC but I heard from everybody I spoke to who was there that debt is back or coming back fast. Equity is still sort of sitting on the sidelines, but we all know that if debt starts rolling, equity is going to be pulled off the sideline because people have hurdles they're trying to mathematically make pro forma.

It won’t happen in a second, but these things pick up momentum. Two years from now, we're going to be talking about the flood of capital. I think we're going to be talking late this year, even by the middle of this year, especially in something like multifamily, that debt is pretty much back. It's not back to peak peak, but it will be back to kind of normal. And shortly after that, you're going to have equity back and then the whole whole rhythm starts again.

Adam

Well, you've repeatedly talked about a 50 basis point cut being appropriate.

Peter

Yeah, my analysis is remarkably simple. If you take the 80,000 items used to measure inflation and you leave out mismeasured housing, the inflation rate over the last two years has been 2.1%. For the 30 years ending in 2019, it was 2.2%. So we are at the 30 year pre-COVID average.

We're back. Inflation has been there for two years, not for two months, but two years. Then you say I want about 50 basis points more than inflation, so that’s like 2.7%. Okay, call that 2.75% if it's a 50 basis points addition and call it 3% if it's a 75 basis point addition. And right now the effective rate is about 3.6%. So you've got at least two cuts to get down to the 3% and it's not hard to see three cuts.

I really believe you're to see it backloaded this year, but you're going to see one of those come, I don't know, April-ish. You're going to see another one coming probably in the summer, and the third later in the year.

Daniel

Let's pivot to Peter the Oracle for a second. We've talked about the debt situation getting better; let’s look at the job market. I don't know how much this is the tail or how much this is the dog, but job postings are at their lowest level in six years, according to the Labor Department. And there have been a number of articles in the Wall Street Journal recently about the pace of hiring, that it’s “dropping precipitously,” that's a quote, and they attribute that to tariffs, they attribute it to interest rates, they attribute it to a lower quit rate and various other things.

It seems to be lots of disparate things structurally affecting the hiring rate, putting downward pressure on hiring. How much is hiring a factor when you're thinking about what the Fed is going to do and does it have particular ramifications for certain real estate asset classes?

Peter

Okay, so job growth was positive and slowed dramatically in the second half of last year. And job openings have fallen, although job openings were staggeringly high in 2021, 2022 and 2023. They're well down now but what you seem to have happening is nobody's getting fired and not a lot of people getting hired. There's a cautionary mode of hiring. And yet GDP appears to be growing. So we're getting more productivity per worker.

So how is that happening? The uncertainty that's been out there usually means hiring is put on pause. But if you still have customers showing up, you sell. Right?

You're not going to say,” don't come to my hotel” or “don't buy my candy bars.” You're going to sell, but you're uncertain about bringing on a lot of people. I think we're in one of those periods where you're saying, okay, everybody's going to pick up a little of the edges, we're going to make it work. You do make it work, but you can't make it work forever.

I think of football, every once in a while a team gets stuck with only 10 players on the field and they survive, right? Most of the time they survive when that happens. And you think, well, that was efficient! But it's not a sustainable kind of efficient. I think we're in that kind of period.

Daniel

How much do you think the reduction in job postings over time is a factor when the Fed officials or when institutional investors are making their decisions? I ask this because we've seen other important metrics get a lot of press like the job postings do. And I'm thinking particularly of consumer sentiment, which used to be a much more meaningful statistic than it has been recently, as it's diverged from its historical trends.

Is job postings a canary in the coal mine or do people look at it and say that's really a result, not a cause we need to focus on.

Peter

Look, every stroke in a painting is part of the picture, right? So in that sense, job openings matter and consumer sentiment. It is not the focal point though.

The focal point, I think, for them are the various metrics of inflation and I think the various metrics of general economic growth like GDP, like industrial output, like service output growing and jobs. Remember they have this dual mandate at the Fed and you could argue if they should but they do and that's their job.

And I think they trim it down to: Are we adding jobs? Is the unemployment rate up? Is inflation low and stable? Is the general economy growing in terms of manufacturing and services . As I say, every stroke of the painting matters, but certain strokes draw your attention to them.

Daniel

Great. Let’s end it here. This was great, Peter. Thanks very much for the time.

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