Economic Soft Landing - What it Means for Passive Investors?

What’s a “soft landing”? It refers to a moderate economic slowdown after a period of growth that manages to avoid a recession.

Starting in March 2022, the Federal Reserve incrementally raised short-term interest rates to fight inflation and set the stage for an economic slowdown or a “soft landing.” There have been 11 benchmark interest rate increases with the most recent occurring on July 26. These rate increases could trigger a recession, or a severe downtown known as a “hard landing.”

In the wake of these measures, the current U.S. economy has exceeded expectations for the second quarter. As of July 2023, the annual inflation rate slightly rose to 3.2% compared to June’s 3%, the lowest since March 2021. The unemployment rate dropped to 3.5% as of July 2023, just above the lowest level since 1969. It appears the economy is on the path to a “soft landing” but the market can change at any time.

Benefits for Capital Investors

Rising interest rates increase the cost of capital, especially in the real estate industry. Many developers and investors need capital to pay down existing loans or finance new projects. Like many, they are facing a new reality in which capital is more expensive and less available.

This creates an opportunity for capital investors to bridge the gap for those in need of financing. Investors can earn attractive returns from real estate debt, benefiting from the rising interest rate environment.