With the Federal Reserve aggressively hiking interest rates, Fundrise CEO Ben Miller warns a recession could be on the horizon. Pointing to historical data, Miller contends rate increases inevitably trigger economic downturns – even if the impact isn’t immediate. He cautions investors to prepare for the “Great Lag.”
Miller lays out three conclusions: “One: It’s the Fed that causes recessions. Two: There’s a very long lag between interest rate hikes and the recession. And three: The losses from a recession are so significant that by far the most important thing over the next 24 months is to be prepared.”
When the Fed raises rates, borrowing money becomes more expensive for consumers and businesses. This leads to reduced spending and investment, slowing economic growth. Miller notes today’s debt burden compounds matters: “The amount of public and private debt in America today is $95 trillion. That’s twice, double, 2007.”
So why haven’t rate hikes caused a recession yet? Historical data shows a lag between hiked rates and downturns. Miller says we likely haven’t hit peak rates, and the “battle” to delay recession causes this lag as borrowers and lenders adjust.
Given the threat, Miller says Fundrise’s focus is defensive investing and capital preservation. While seeking opportunities in private credit, he notes, “Most important thing when you’re managing people’s money is to not lose money.” For Miller, preparing for the next recession outweighs any short-term gains.
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