A top real estate investor predicted that higher inflation may linger for the next decade.
Christopher Merrill — the chief executive of Harrison Street, a real estate investment firm with $39 billion in assets under management — told CNBC’s Leslie Picker that higher-than-usual price levels are evident in the marketplace.
“What about this current macroeconomic environment that feels so uncertain right now? Do you think inflation is here to stay?” Picker asked. “And how does that impact your portfolio?”
“I think for one, the certain levels that we’re seeing today, I would assume that there will be, as we see improvements in supply chain, I think we’ll see some of those numbers come off a little bit,” Merrill answered. “But yeah, I think it’s prudent in the way that we’re thinking about the businesses that one should expect some level of now inflation in their portfolio going forward.”
Later in the interview, Merrill pointed to President Biden’s domestic agenda as a significant force behind higher prices.
“And I guess the new Build Back Better plan they’re talking about really has a focus on renewable energy and again, that will, I think, bring more focus on our clean energy portfolio as well,” he said. “But I guess the real big picture is, going back to the question about inflation, is with all this spending of money, what are your views on inflation? And that’s why we think there is going to be some inflation for the near future because of this stimulus and a lot of capital that is coming into the system.”
Picker asked Merrill to predict how long the abnormal inflationary pressures would last.
“I’ve heard some people say that, within 12 months, there won’t be talk of inflation,” he explained. “I think it’s prudent to, as you’re doing your portfolio allocation, you’re thinking about investing, to assume that there is going to be some level of inflation in the near term, and really, for the next decade, because of how much money we’re printing right now in the system.”
Other fund managers have been noticing the effects of high inflation upon the economy. Bill Ackman — who leads the firm Pershing Square Capital Management — recently advised the Federal Reserve Bank of New York that “the Fed should taper immediately and begin raising rates as soon as possible.”
“We are continuing to dance while the music is playing, and it is time to turn down the music and settle down,” he argued. “As we have previously disclosed, we have put our money where our mouth is in hedging our exposure to an upward move in rates, as we believe that a rise in rates could negatively impact our long-only equity portfolio.”
The Personal Consumption Expenditures Price Index — the Fed’s preferred inflation metric — has reached its highest level since 1991. Though the central bank was poised to hike interest rates in the near future, the Omicron variant of the coronavirus could delay the move.
Indeed, Fed Chair Jerome Powell told Congress earlier this week that the variant will cause uncertainty about economic growth and inflation in the coming months.
“The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation,” he said. “Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.”
Last month — after more than eighteen months of monetary stimulus following COVID-19 and the lockdown-induced recession — the Fed revealed plans to taper its $120 billion of monthly bond purchases by $15 billion in both November and December.