"The Fed is not in business to help us"

Yes, sitting on the Board of Governors of the Federal Reserve is largely a thankless job, their economic approach often inspiring vitriol and contempt. But make no mistake: The Fed is not your friend, suggests one top executive.

“The Fed is not in business to help us,” Jeff Holzmann (pictured), COO of RREAF Holdings told Mortgage Professional America during a recent telephone interview. MPA reached out to Holzmann to get a grasp on what the Fed is doing and the impact its actions have on the commercial real estate (CRE) market.

He began with something of a primer: “The Fed obviously controls – without getting into the technicalities of how it works – the inter-banking interest rate which a lot of those commercial real estate loans are tied to as an index. There is an index and a spread. There’s an index, there’s a rate above that and then sometimes there’s a rate cap above that.”

The impact is huge

What happens when the central bank tweaks rates? “If the Fed moves the interest rate up or down, it has a huge impact on commercial real estate,” Holzmann said. “It has a livelihood of thousands of people for every deal. It’s a massive direct impact.”

Since March 2022, the Fed has lifted interest rates 11 times and held them steady twice, including September’s pause.

Here’s where one can disabuse oneself of the notion of benevolence as it relates to the Fed: “There’s a reality on that, and I’m not sure if you get this kind of straight talk from everybody, but this is how I look at it and what I tell our employees as well. The Fed is not in the business to help us. The Fed is not in the business to take care of you or take care of your process. That’s not their agenda.

He continued: “You know what their agenda is? What are they trying to achieve? Their job is to worry about inflation and about employment. That’s their charter in law.”

Hitting the brakes on the economy

Holzmann was measured in his tone, calmly explaining the Fed’s role even as its actions are counterintuitive to running a business. He even allowed for the complimentary: “These guys tend to do a very good job,” he said. “These are smart people that usually make decisions based on data, not an article somebody wrote in the paper. When the Fed increased the interest rate, it’s what economists like to call hitting the brakes on the economy.”

Then his tone takes on a vague umbrage. “What they’re trying to do – and by the way, successfully doing – is making the lives of companies like ours more difficult. I’m not being sarcastic – that’s what they’re trying to do. They want to make sure that companies like ours don’t transact too much, don’t make too much money, don’t distribute too many bonuses. I’m not joking; that’s exactly what they’re trying to do because that, in turn, takes the 100s of employees that I have and makes their available income a little more tight – which means they spend a little less money, which means prices don’t go up as much, which means inflation doesn’t go up as much and the Fed achieves its goal.”

He’s not covetous of their jobs, he suggested. “By the way, I don’t envy any of those governors,” he said. ‘What they’re trying to do is what we call a soft landing. They’re trying to get me to not make as much money without going overboard and me firing half the company and getting rid of my assets and telling everybody ‘oh my God, we’re screwed. You don’t have a job, and we’re all out on the street.’ That would be a hard landing.”

For all his insights into the Fed’s machinations, it’s still unclear whether we’re heading for a soft landing or a hard version. “The Fed has a tremendous impact, but really what is interesting to me is how much longer they can continue to do it and still expect things to slow down versus crash down and the answer to that is I don’t know. I don’t know.”

The Fed has a stated goal of bringing inflation down to 2%, and it currently sits – at this writing, anyway, as it’s rather mercurial – at around 3.67%. It’s more than the 3.18% last month and considerably down from the 8.26% from last year.

Clearly, there’s still work to be done by the Fed in reaching its elusive 2% goal. Holzmann will no doubt keep an eye on further Fed developments, but he hardly hangs on their every word. And given his firm’s strong holdings and liquidity, he really has no figurative dog in the fight.

“In my little world, we’re doing OK,” he said. “We don’t have to transact to survive, and we have an investor base and we continue to grow and diversify.” Holzmann suggested he does not take that for granted. “Not every company can say that,” he said. “There are companies out there that are hurting, and that is what the Fed is trying to do. That’s their job.”

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