The Chief Economist: Worst Cutting Cycle Ever?
The latest edition of The Chief Economist by Ryan Severino dives into the Fed's ongoing interest rate cuts and their implications for the economy and commercial real estate (CRE). The Fed recently reduced rates by 25 basis points, yet the market was caught off guard by scaled-back expectations for additional cuts this year. While the Fed's guidance now suggests only two cuts for 2025, its inconsistent approach has led to significant market dissatisfaction. Despite 100 basis points of cuts in 2024, long-term Treasury yields remain stubbornly high, bucking historical trends. This has created a challenging environment for CRE, with the market grappling with tighter monetary conditions and slower yield normalization.
Inflation continues its downward trajectory, as indicated by November's PCE index, but concerns about the labor market are mounting. While job openings remain elevated, hiring has slowed, and wage growth is stabilizing. These labor dynamics could lead to a policy misstep if the Fed remains overly focused on inflation risks. For CRE, the uneven economic environment suggests that while growth opportunities persist, the sector may face turbulence in the near term, particularly if interest rate adjustments lag behind labor market realities.
