Headline inflation jumped this spring and early summer, and the reflexive response followed: Prices are up so the Fed has to raise rates. Peter Linneman's read is simple and practical: Strip energy out of the numbers and there is nothing to act on at all.

In the months since the Iranian disruption began, oil has climbed between 40% and 60%, and it still is about $10/barrel above where it was before we were talking about a potential war with Iran. Everything else behind inflation has not moved. The rate of increase on non-energy prices in May matches April, which matched March, February, January, and last December. Core inflation outside energy has run at 2.2% to 2.3% for more than two years.

The question is whether oil is something the Fed can address, and Linneman reduces it to a single test. "If the Fed lowers the interest rate, will it open the Strait of Hormuz? No." When the cause of inflation sits outside the central bank's reach, acting anyway does collateral damage, and may exacerbate the problem. If the Fed raised rates, that would increase the cost of extracting oil. If you raise the cost of producing something producers produce less of it. A hike aimed at oil-driven inflation tightens oil supply and may push the very prices it targets higher.

The analogy Linneman returns to is a blizzard. It is real, it is unpleasant, it erodes people's lives, and the Fed cannot stop it by moving rates. Oil shocks behave the same way, and they pass. After the Ukraine invasion in 2022, oil ran to $125, the equivalent of roughly $155 today. By the time ships started moving toward the current conflict zone, it had fallen to $60. Six years ago it briefly went negative. The series is volatile in both directions, we need to let it self-correct.

For a real estate investor, risks run through the Fed's response, not the oil shock itself. An unjustified rate hike flows straight into construction financing costs, floating-rate debt service, and cap rate expansion, and it does so on a misread that reverses when oil does.

A rational response is to underwrite the energy spike as the transient drag it is, falling heaviest on younger, lower-savings renters who commute. Don’t assume the Fed and the 10-year are on a structurally higher path. In the end, core inflation hasn’t left 2% , and the energy spike should unwind the way prior ones have.

Before email, cities shot messages through pipes.

In the late 19th and early 20th centuries, pneumatic tube networks used compressed air to move canisters of mail beneath city streets. New York’s system ran for decades, connecting post offices through an underground labyrinth that feels today like a steampunk prototype of the internet.

It is a reminder that the urge to move information faster is not new. Before servers, inboxes, and push notifications, there were brass tubes, rushing air, and letters flying under Manhattan.

Check out this fascinating look at the pneumatic mail network that once pulsed beneath New York City.

Link: https://www.smithsonianmag.com/history/when-a-labyrinth-of-pneumatic-tubes-shuttled-mail-beneath-the-streets-of-new-york-city-180983472/

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