Economic anxiety is surging as a mix of global and domestic pressures fuels fears of stagflation — or at the very least, a looming recession. The war in Iran has rattled energy markets, pushing gas prices above $4 a gallon, while inflation concerns are intensifying, the national debt has topped $39 trillion and job creation is faltering. For commercial real estate professionals, the question is no longer whether these trends matter, but how deeply they may reshape the industry.
Warnings about stagflation — the toxic blend of slowing growth, higher unemployment and persistent inflation — have circulated for years. But lately, the warnings have grown louder and more frequent.
At the Urban Land Institute, Beth Mattson-Teig spoke with several economists about the rising risk. Thomas LaSalvia, PhD, head of commercial real estate economics at Moody's Analytics, said the firm projects a 20% to 40% chance of stagflation if the Middle Eastern conflict continues longer than expected.
"In such a scenario, multifamily and retail would face mounting stress as household budgets tighten," LaSalvia said.
John Chang, chief intelligence & analytics officer at Marcus & Millichap, likewise cited Iran's role in elevating stagflation risks.
"Depending on the severity of economic weakness, demand for retail and industrial space could soften, but most leases in these property types are longer," Chang said.
"The economy is showing some of the signs that have historically preceded stagflationary episodes, even if it is not in a stagflationary period today," said Sam Chandan, founding director of the Chen Institute for Global Real Estate Finance at the New York University Stern School of Business.
"Inflation risks remain tilted to the upside, while risks to employment have shifted to the downside, making the trade-off across the Fed's dual mandate more pronounced." He noted that, unlike the 1970s, today's pressures stem from supply-side issues tied to tariffs.
While stagflation is far from certain, there is growing unease at the highest levels of policymaking. During a recent talk at Harvard, Federal Reserve Chair Jerome Powell expressed confidence in the "resilience" of the U.S. financial system, as reported by The Harvard Gazette. Still, he said the Fed would "very, very carefully" monitor inflation and warned that congressional spending well beyond revenue is "not sustainable," adding that the economy must eventually grow fast enough to keep pace.
As Fortune reported, the war in Iran shows no sign of conclusion, adding to energy price volatility. AAA data puts the national average gas price at $4.06 per gallon. Jim McCormick, chief global macro strategist at Citi, told Bloomberg TV that inflation could be "significantly higher in the coming months."
Moody's Analytics Chief Economist Mark Zandi recently said that in his 36 years as an economist, he's rarely been "less sure about the outlook" in these "troubled and uncertain times" as higher oil prices and geopolitical instability deepen.
"Right now, we're in the spirit of stagflation, but it's not like it was during the 1970s when both figures were in double digits," Zandi said. "We'll get to the other side of this. We just don't know when. But if nothing improves over the next month or so from now until early May, then we're heading into a recession."
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