release edition [073] read time [9 minutes] Welcome to The Multifamily Download, a weekly newsletter where I provide institutional insights to help you build an exceptional Multifamily career. Forwarded this email? Subscribe here. Today at a Glance:
Strong Jobs Report, Now What?After several weeks of operator focused tactics and strategies, I thought I'd shift to sharing some economic data and perspectives as we approach Kevin Warsh's first FOMC meeting as Fed Chairman later this month. Yesterday morning, the BLS reported that the U.S. economy added 172,000 jobs in May. The consensus was predicting ~80,000 new jobs, so the print doubled what most economists expected. The unemployment rate held at 4.3% for a third straight month, and the prior two months were revised up by a combined 93,000, which means the past three months now mark the strongest stretch of hiring in over two years. This is welcomed news after a bumpy 18 to 24 months, to say the least. If you've been reading along, you'll notice this is a far cry from how 2026 began. In TMD 060, I led with February's jobs report, which showed 92,000 jobs lost, and I wrote that the labor market looked like it could be finally rolling over. Thankfully, it hasn't. As we look one layer beneath yesterday's headline, the report becomes more interesting. The reported job gains were clustered in lower-wage corners of the economy, with leisure and hospitality adding 70,000 and local government adding 55,000, while financial activities lost jobs. Long-term unemployment, defined as those out of work 27 weeks or longer, has risen by 524,000 over the past year, and wage growth cooled to 3.4%, its slowest pace since August 2021. In my view, this jobs report is further evidence of the K-economy that I've written about since TMD 004. What does this mean for Multifamily? In short, job market strength paired with slowing wage growth may support resilient occupancy more than it supports improving pricing power in the near term. Before moving to the next section below, I want to acknowledge that the consensus view on rates for 2H 2026 has merit, even if I think it misses part of the story. The consensus view sounds something like this: Strong jobs, therefore no rate cuts, therefore nothing changes. That is the old way of thinking, and it attempts to distill the complicated, multi-variate economic machine into a single on-off switch. My opinion, as you'll read below, is slightly different. Let's jump into it. Why the Old Playbook BreaksFor much of the last decade the "Fed logic" has been simple:
The market would then set its interest rate expectations based off the jobs report, and under Jerome Powell, this Fed logic mostly held true. Kevin Warsh, sworn in as the 17th Fed Chair on May 22, seems to be approaching the Fed's dual mandate (stable prices + full employment) from a different angle. At his April confirmation hearing and in the weeks since, Warsh has laid out a framework that Wall Street has taken to calling "QT-for-cuts". That is, cutting short-term rates while actively shrinking the Fed's nearly $7 trillion balance sheet. His case for cutting rates rests on the argument that AI-driven output and productivity growth will act as a disinflationary force, especially due to the United States' primarily service-based economy. Warsh has also signaled that he wants to end forward guidance and may retire the dot plot. I first wrote about Kevin Warsh in early February in TMD 055, and as Fed Chairman, his thinking is now the single most important variable heading into the June 17 FOMC meeting. The looming question is this: Wouldn't this hot May jobs print slam the door on the idea of near term rate cuts? Traditionally yes, but the labor market may not be the variable that Warsh is reacting to in the short term. His argument, in his own words, is that the current setup has it backwards. He has said that part of the reason market rates are so high, and part of why first-time homebuyers can't get a mortgage, is that the Fed is "fighting the last war" and keeping rates higher than they need to be. He calls the nearly $7 trillion balance sheet "emergency liquidity for Wall Street." In his framing, cutting the short rate is "the place to begin, not the place to end," a first step toward a stronger economy rather than a reward for a weak one. Here is where I part ways with the consensus, and where I think this debate gets genuinely interesting. The consensus reads strong jobs and assumes this is the reason that rates must stay high based on the logic that a hot economy will overheat into runaway inflation unless demand is cooled. That framing assumes today's inflation is demand-driven, which is the kind of inflation that higher rates are actually built to fight. I tend to disagree. My take is that the U.S. economy is strong despite elevated rates, not because demand is running too hot. And, that the inflation we're living with today is structural and fiscal in origin. It's the product of constrained supply (energy, housing, supply chains) and years of deficit spending and money creation, rather than an overexcited consumer that a 3.75% funds rate is needed to tame. I'm bolding the next sentence, because it may be the most important one I share today. Choking the real economy with high interest rates does little about supply-side or fiscal inflation, and it suppresses the one thing that could actually bring prices down: New productive output. This is the heart of economist Richard Werner's quantity theory of credit, which is the idea that what matters is not just how much credit exists but where it flows. Credit directed into productive investment generates growth without inflation, even at full employment. However, credit funneled into consumption or speculation generates inflation without growth. Lowering the cost of capital so it funds new supply, new housing, new energy, new capacity, and an economy can grow it's way out of inflation. James Thorne at Wellington-Altus has been making a parallel case, arguing that supply shocks should not trigger Keynesian rate hikes, and that, we may be watching a regime shift toward policy that expands supply and lowers prices while still growing GDP with supply-side thinkers like Warsh shaping the Fed. Thorne sees rates gliding toward a neutral in the high-2s coupled with strong nominal GDP. In short, the new Fed and Treasury regime is leaning supply-side, and the old Keynesian demand-side reflex is the very thing it's trying to retire. The honest caveat is this: The productivity payoff from supply-side reform takes time to materialize. The strong May jobs print doesn't undercut the case for rate cuts. If anything, a sturdier economy is the backdrop that Warsh would argue makes cutting safe to push the unfolding productivity boom forward faster. At the April meeting, the FOMC split 8-4, the most dissents since 1992, with several members leaning toward hikes rather than cuts. Warsh inherited a committee that voted to hold and shows little appetite to ease, and he cannot cut on his own, meaning he has to persuade a majority of the room that his thesis merits adoption. His first test arrives at the June 16-17 FOMC meeting, where markets are pricing a near-certain hold (CME FedWatch put it around 97% at the time of his confirmation). I don't know if Warsh will get his supply-side paradigm shift embedded into the FOMC meeting decision hierarchy, but I get the sense that it won't be for a lack of trying. Let's wrap up today with a thought exercise. Good Jobs = More Risk?Suppose Warsh wins the internal argument and the Fed cuts short rates later this year. That would help the front end of the curve, where SOFR lives, but it would have far less impact on the long end, where fixed financing is priced. Thus, the key mechanism to consider here is the balance sheet. If the Fed cuts short rates while running off (i.e. actively selling) its long-dated holdings, it pulls a major buyer out of the long end at the same moment the Treasury is financing large deficits with heavy new issuance. Add the recent +3.8% inflation on top (caveat here is energy prices), and the 10-year has little reason to rally (i.e. come down). Back in TMD 058, I flagged January CPI at 2.4% as a trend worth watching. It ran the wrong way, and the market is already leaning into this. As I write this, the 10-year sits at 4.53% while the 2-year is at 4.14%, a spread of roughly 39 basis points (per Pensford). That widening 10-2 gap is worth watching. Per Yardi Matrix's recent May U.S. Multifamily report, the national average rent rose just $6 to $1,767, up only 0.2% year-over-year, with rents now negative in 18 of the top 30 metros. National occupancy slipped to 94.1%, its lowest level since 2013. Additionally, Austin rents are down 3.7%, Phoenix is down 3.1%, and Denver is down 2.9%, even as those same metros keep absorbing new supply (Phoenix is delivering 4.4% of its existing stock over the trailing year, Austin a striking 6.5%). A high cost of capital meeting flat-to-negative rent growth is not a backdrop that can be grown out of in a quarter or two. So, what now? First, watch the shape of the curve, not only its level, since the spread between the 2-year and the 10-year will tell you more about your refinance math than the Fed funds rate will. Second, treat the upcoming FOMC meeting as a language event rather than a rate event because Warsh's press conference and the pattern of dissents will signal the back half of the year far better than the rate decision. Third, where possible, pursue acquisitions with loan assumptions that mitigate the Capital Market volatility as I wrote bout in TMD 057. I'll leave you with one of the key questions I'm thinking about: If a stable and strong labor market creates a challenging refinance environment (i.e. yield curve normalizing), how should Multifamily owners be underwriting and forecasting rates into the future? I'm curious to hear how you're reconciling these two opposing forces. Hit reply and let me know! Weekly ListenThis week's listen is Scott Bessent's December appearance on the All-In podcast. In the episode, the Treasury Secretary works through the administration's thinking on affordability, the BLS data, and the interest rate cycle, and he gets specific on the Fed and the candidates who were in the running for chair. After everything above, I thought this episode is a great way to capture the macro framework sitting underneath both Warsh's approach and Friday's jobs print. You can listen to the full episode here. Wrap UpThat's it for today. I hope you found this edition of The Multifamily Download insightful. Consider sharing this link to The Multifamily Download with a friend or colleague. Your feedback is appreciated, so feel free to reply anytime. Thanks for reading. See you next week! Forwarded this email? Sign up here. Join me on LinkedIn | Twitter | Website |
The Multifamily Download · June 6, 2026
172K Jobs & Why Rates Might Still Fall
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