In this creatively titled edition of The Chief Economist, BGO’s Ryan Severino draws inspiration from quantum physics to explain the Fed’s dilemma at the close of 2025. Like Schrödinger’s cat, the Fed seems caught between two states—wanting to cut rates to protect a softening labor market, yet hesitant due to persistent inflation. BGO anticipates a 25-basis-point rate cut, consistent with its contrarian outlook maintained throughout the year. With inflation expectations stable and job losses mounting, BGO argues the greater risk lies in labor market deterioration rather than runaway inflation. If the Fed acts, it would validate BGO’s forecast for the second consecutive year, reinforcing its data-driven and forward-looking perspective.

For commercial real estate (CRE), BGO underscores that rate cuts are not a silver bullet. While lower rates can support valuations, the relationship between interest rates and long-term CRE returns is complex. BGO highlights that strong CRE performance has historically occurred even in higher-rate environments, as seen in previous decades. Success, it notes, depends on investor skill and adapting to evolving conditions where income generation plays a larger role than appreciation. As 2025 concludes, BGO’s analysis reminds investors that understanding nuance—not just chasing rate cycles—is key to sustained CRE performance.

Read the full article here: Schrödinger’s Cut