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Welcome to the Commercial Real Estate Mastery podcast, where you'll learn the correct way to identify, negotiate, perform due diligence on, renegotiate, finance, turn around and operate real estate in today's market -- a market in which volatility creates opportunity, and sound principles defeat fads and bubbles. And your host is a 25-year commercial real estate veteran and co-owner of over $1 billion in real estate assets, Frank Rolfe.
For the past 80 years, the party in control typically loses that power in the midterm elections. And it's a very real possibility that come November of this year, the Republicans will no longer control the House and the Senate. But what happens to the commercial real estate market when you have a split party rule? This is Frank Rolfe, the Commercial Real Estate Mastery Podcast. We're gonna delve into and explore what might happen if, in fact, the Republicans lose the House or the Senate or both. So the main issue when one party loses control is that suddenly when you have a divided government, it's very hard to get anything accomplished. Even with the Republicans right now holding presidency, House, and Senate, there's been many bills they've been unable to get done, passed. The filibuster rule particularly kind of holds things in abeyance, and so it's really hard to get things accomplished. But in divided government, it's effectively nearly impossible.
So if in the midterm elections Republicans lose the House or the Senate, it's a pretty good bet there won't be any further Trump legislation coming down the pike. That will be effectively then stopped. So you won't see a whole lot more things coming, new things coming, if in fact the Republicans lose in the midterms. But there's then still things that can happen behind the scenes that don't require congressional approval. First one is regulatory rollbacks. That's been a hallmark of the Trump administration is rolling back a lot of these things, many of which people didn't like and were a little concerned about whether they were worth the money or not, particularly things regarding the environment. You're already seeing a lot of rollbacks on things like the coal industry, different things like that. And the big winners, if that were to occur, if those rollbacks continue, of course, are the states that are focused on industries that these regulations were hurting.
A big one, for example, is Illinois or West Virginia, which one of their biggest commodities are coal. But with through these rollbacks, the coal industry is starting to come back to life, but regulatory rollbacks continue on because they don't have to get passed through Congress. These are all things that can be done through executive order. Another one is ramping up this whole government efficiency narrative, and so we're having less government now. We're having less employees in government. The ramifications in commercial real estate include people that own lots of apartment complexes and office buildings and things up in where the government's located at, in the D.C. Area. They're having problems there because of lower people. Many other cities that have heavy concentrations of government jobs are being impacted.
So that's something that will continue on even if the Republicans lose during the midterm elections. Also judicial appointments, those will continue on. Some of those go through Congress, there is some kind of vetting process, some do not. But regardless, when judge positions become open, they must be filled, and that will still occur even with the split government. But the biggest issue I think for anyone in the commercial real estate space tied to the midterms or non-midterms at this moment is simply interest rates. Where are interest rates going to go? Because when interest rates are low, real estate does incredibly well. When interest rates are high, it doesn't do nearly as well.
And we've been coming off one of the worst interest rate catastrophes in modern American history. We had Jerome Powell at the Fed raised the interest rate at 11 consecutive times, fastest that rates have ever gone up in the past 40 years. It was kind of odd because we all knew that rates would have to go up someday. We thought they would go up in small measured increments, but instead Powell just literally floored the car. We thought he would kind of cruise a very low rate of speed. No, he floored the car and went from 0 to 100 as fast as he could take it as far as interest rates going up. So now the question is, where do interest rates go in light of the midterms? Well, the first big step we have happens before the midterms and that's when Kevin Warsh should be becoming the head of the Federal Reserve and Jerome Powell out the door. 'Cause Powell's term ends in May and he is definitely gone, already kind of pre-fired, and now Kevin Warsh will jump into his position. Now, we don't know what Warsh will do with interest rates, but he was chosen by Trump and we have to assume since Trump has said many, many times he wants rates to be lower, that Warsh was selected because he will in fact get those rates lower.
Also, people may not be aware, but Scott Bessent is the one who holds the keys to quantitative easing. Many people think the Federal Reserve is who can do quantitative easing. And yes, they can, but the Federal Reserve is at this point a split vote at best. You have a new guy going in, but even when Powell was there, you had dissenters. So there's no guarantee that anyone in the Fed would ever get back into quantitative easing. But in fact, quantitative easing is what drives rates truly down. It's not the Fed funds rate because most mortgages on real estate are based on the 10-year Treasury and not the Fed funds rate. So even if Kevin Warsh would jumped in there and lowered the Fed funds rate down a point or two, that doesn't mean any corresponding drop in long-term mortgage rates. The way Obama got the rates so low during the 2007, 2008 Great Recession was 100% due to quantitative easing. But Scott Bessent over at the Treasury, who's a very, very big fan of Trump, he has the ability unilaterally to have quantitative easing.
He, just as an individual, can restart the quantitative easing machine anytime he wants. So that one issue on interest rates has no bearing on midterm elections. Bessent isn't up for any kind of midterm election, and he'll be there all the way through the end of Trump's term. And he has ability to quantitatively ease, but I think the big one is that to really have lower rates, America finally has to have an actual recession. Because recessions typically followed America every eight years or so. Just look back a little ways. 2000, the dot-com bust. 2008, Great Recession. That was an eight-year spread. Go backwards from 2000 and every eight years we had a recession, but we've not had a recession now since 2008. Longest period in American history, 18 years. We would typically at this point in the movie have at least two recessions under our belt. So when you have a split government, then what's going to happen is it gives you the ability to cast blame. And if Trump has been waiting for a reason to say, hey, we're in a recession, without damaging the midterm elections, that goes away post-November.
And as someone who's been through many recessions in America, the minute you start using the recession word, it's a self-fulfilling prophecy. People shut down their spending, making the economy even worse, which makes them hear more about the recession and they stop down their spending even worse. It's a cycle. It's like a tailspin on an airplane, and more than likely what the midterms will trigger, and I don't think you'll see any movement between now and the midterms other than Kevin Warsh taking Jerome Powell's spot. But post-midterm elections, there will be nothing to lose for the Trump administration. Can't run for another term. Nothing he's trying to get accomplished on the political side, and I think that's when you'll really start seeing a lot of action taken on interest rates. Trump has vowed to get the rates as low as they were before, and I think he can probably do it. But the midterm elections will not have any impact on that one key item. This is Frank Rolfe with the Commercial Real Estate Mastery podcast. Hope you enjoyed this. Talk to you again soon.