You can't be in the self storage industry and not be focused on interest rates. You can't even be in any form of commercial real estate without having a very big focus on whether rates are going up or down. In our current involvement in this attack in Iran, what people are calling the war in Iran, many people see that as a very, very important trigger in the trajectory of interest rates going forward. But the question is, does that make them go up or does that make them go down? This is Frank Rolfe, the Self Storage University podcast. We're gonna explore the impact of the war in Iran on the future direction of interest rates. Now, I have been through three major recessions in my lifetime. The '87 recession, which really went on, it was protracted through '91. I knew of it back in '87 as a Texas savings and loan crash, but it really went on to affect most of America by the early '90s. And then the dot-com crash. And then, of course, you had the Great Recession in 2007. But I'm old enough to have been around during some earlier problems, and those were the recessions of back in the '70s.

And what people don't realize is one of your big recessions back in 1979 was caused by the Iran oil issues. The whole Iran revolution that shut down their oil production caused many of the same problems we're seeing right now. So I've kinda seen this movie before. I also was around back in '73 during the OPEC oil embargo, something the younger people certainly weren't even alive during that time, but I was there. I remember the oil embargo. I remember having all those lines of cars at gas stations where they couldn't even get enough gas. You had to like go around town, try and see if you could spare a gallon here or there. So I'm no stranger to what's going on in Iran and no stranger to what the byproducts might be. But there's two ways that this is all going to play out when it comes to interest rates. The first scenario would be one in which the price of oil goes up. That's a given, it already has, it's over $100 a barrel. And as a result, we see massive spikes in inflation, which is almost guaranteed because one thing we've all learned over the decades is the price of oil and gas has an enormous impact on inflation because fuel is really a part of all products.

If they don't use a fuel to make 'em, well, they sure use it to ship 'em. So simply because the price of gas has gone up here in Missouri, just recently went to fill up my car and it was nearly $5 a gallon. That's a huge hit because that's a significant increase, maybe 40% of what it was prior to the issues in Iran. So if inflation's gonna go up, then, well, that's all the Fed needs to hear to not drop interest rates because they have two mandates. One is to battle inflation. And so basically the fact that inflation is going to be going up, which is nearly a given, that's going to definitely give fuel to the concept that the Fed will not reduce the rates down any further at all. Or if they do, it won't come again this year, but maybe sometime next year. But there's another part of the Fed that needs to be discussed, and that is the second part of their mission, not the one regarding inflation, but instead the one regarding employment. Because the employment numbers even prior to Iran were very low, very, very low, not anywhere near what the experts had planned.

So our labor market really wasn't that good before any of this occurred. But now that it has, what we may be looking at with those higher energy prices is people consuming less. People will eat out less, they'll drive less, they'll buy fewer products. And we're very much of a consumer economy, that's what drives the economy. When people don't wanna buy anymore, what happens? Well, the profitability of companies because their sales go down, they go down, their values go down. Look what's happened in the stock market just since the Iran war broke out, and you can see a huge correction. The Dow Jones right now is down 6% from where it was on January 1st. That's pretty abysmal. If you were to annualize that, that's really bad. That's about 24% per year down, so that's a scary number. But when the employment tanks, what happens? Well, if the Fed is actually following their mandate, even though inflation is up, when the economy and employment goes down furiously, they're supposed to drop the rates. That's what you saw in all of the recessions I've ever been in. And certainly if you go back to the 2007, 2008 Great Recession, we saw some of the largest declines in interest rates in American history.

So what will it be? Will the Fed elect to keep rates high because of inflation, or will they drop the rates because of the weakness in the US market? Well, that is really the big issue we all need to watch. But I will tell you one thing that I've learned from living through so many recessions of the past, and that is when you start using the R-word, you start talking about recession, it's often a self-fulfilling prophecy. Because you scare people, and when you scare them, they tend to buy less stuff. You saw what happened during COVID, right? Word got out that we would have a shortage of things like toilet paper, and suddenly everyone ran to the store to buy up toilet paper and all the toilet paper was gone. And that set people in an even bigger fury. Oh my gosh, the toilet paper is already gone. What do we do? How do I get toilet paper? People were buying it on eBay as though it was gold, simply because there was a panic, there was a stampede. When you start saying the word recession, you end up with a stampede. And the problem, as we all know, is most of the media is fairly much on the blue team. And as a result, they're gonna definitely really ramp up and promote this concept of recession. Now, they don't take it lightly because when you start talking recession, that makes their ad sales also go down.

Companies like Procter & Gamble have no interest trying to sell shampoo when people aren't buying shampoo, and so they stop advertising. But at the back of their minds, you know the media would love to go crazy talking about recession. And I'm already starting to see lots of articles regarding the US and the higher potential for recession now and are we going into recession. And of course, I'm not a media company, so I don't care what happens to them. But from a real estate only perspective, all that talk of recession could be a positive. Because the only way you're going to get lower rates at this point in the movie with inflation going up is for the Fed to panic because of abysmal employment numbers and the stock market falling dramatically. Also, don't forget the wild card, which is the new head of the Fed named Warsh. He is coming into the office starting in May. Jerome Powell is out the door. That means we have a whole new chef in the kitchen, one we've never had before. Now, he was, in fact, part of the Fed. The new guy was there for a year or two many, many years ago.

Good decade or so. So we don't really know where he's going, but we have to assume he was handpicked by Trump because of his affinity to lower rates. So I think that's pretty much a given. And also don't forget that the only way to get rates really down is quantitative easing. But many people are unaware that the only one who can actually do quantitative easing on their own without any official vote is Scott Bessent over at the Treasury. And he talks endlessly on the fact that rates definitely need to come down. And he holds the key. He can do it all on his own with nothing more than his own executive order to start quantitative easing. The bottom line is, the Iran war has kinda been a catalyst to the ultimate ending of where interest rates are gonna go for the rest of 2026 and beyond. Are they gonna go up? Are they gonna go down? I would say more than likely they're gonna go down because of all of these recessionary problems. But none of us really know. It'll be interesting to watch and see what happens. This is Frank Rolfe with the Self Storage University podcast. Hope you enjoyed this. Talk to you again soon.