News

Economy, the Fed, and Rates…

March 17, 2026

Economic Data & Labor Market

• The economy entered the Iran shock weaker than anyone thought two weeks ago. The BEA’s second estimate cut Q4 2025 growth to 0.7% annualized—half the initial 1.4% reading—while revising the GDP price index up to 3.8% from 3.6%. That is stagflation in one data point: growth halved, prices revised higher. Consumer spending contributed just 1.3 points (down from 2.3 in the prior quarter). The Atlanta Fed’s GDPNow model pegs Q1 2026 at 2.7%, buoyed by the government shutdown bounce-back and larger average tax refunds (up 10.6% YoY as of March 6). Watch: Bloomberg Economics estimates that if oil stays above $83/bbl for much of the year, it would offset the average household’s refund gains entirely.
• Core PCE stuck above 3%—even before the oil shock. January core PCE rose 0.4% MoM and 3.1% YoY, the highest annual reading in nearly two years. Services inflation hit 3.5%; a closely watched services-ex-energy-and-housing metric posted one of its strongest monthly gains in a year. Headline PCE was 2.8% YoY. CPI has moderated faster (2.4% in February), but the divergence reflects housing-weight differences and a shutdown-related statistical quirk. Wall Street expects February core PCE at around 3.0–3.1%, and those numbers, too, predate the war.
• The consumer is bending, not broken—but the cushion is thinner. Real consumer spending rose just 0.1% in January; the savings rate jumped to 4.5%, its largest monthly increase in a year. Corporate signals are more upbeat: BofA card data showed spending up 4.6% last week, and Visa and Mastercard executives described stable positive growth across income cohorts. But gasoline has surged from $2.94/gal a month ago to $3.63 after 13 straight days of increases, and lower-income households are disproportionately exposed. University of Michigan sentiment slipped to 55.5 in early March; the improvement visible before the conflict disappeared in interviews conducted after it began.

Federal Reserve Policy & the Warsh Nomination

• The Fed is paralyzed—and oil cements it. The FOMC meets March 17–18 and will hold at 3.50–3.75%. Futures markets have swung from pricing two cuts this year to, at most, one—with CME data showing a 38% probability of no cuts at all in 2026. The mechanism: oil above $100 pushes headline inflation higher, making it analytically impossible to ease while prices accelerate—even if the shock is theoretically “temporary.” The debate has shifted from “when do cuts resume” to “can the Fed cut at all this year.” EY-Parthenon’s Gregory Daco projects at most one cut (December); Morgan Stanley still calls for June and September, but acknowledges delay risk.
• Inflation psychology is the sleeper risk. An AEI analysis in the FT argues that the Fed should treat inflation expectations as fragile rather than anchored. After 2021–22, businesses developed what the author calls “muscle memory” for passing through costs—a behavior that was front of mind in a way it was not pre-pandemic. In April 2025, Michigan’s five-year inflation expectations spiked to 4.4% after the Liberation Day tariff announcements. Bond-market break-evens and professional forecasters remain calm, but household surveys are increasingly partisan and harder to read. If an oil-driven price spike convinces the public that inflation is re-accelerating, that belief can become self-fulfilling.
• Warsh’s path is stuck in a legal loop. A federal judge rejected DOJ subpoenas in the criminal investigation of Powell’s handling of the Fed’s headquarter renovations on March 13—but D.C. U.S. Attorney Pirro announced an immediate appeal. Senator Tillis (R-NC) has vowed to block Warsh until the investigation is scrapped; with a 13–11 GOP majority on the Banking Committee, a single defection could create an impasse. Powell’s chair term ends May 15; court filings suggest he may remain as a governor through 2028 if the succession drags.

Treasury Yields & Bond Markets

• Yields posted their sharpest two-week surge since Liberation Day. The 2-year closed at 3.72% on Friday (+16 bps w/w, +34 bps over two weeks—largest since October 2024). The 10-year settled at 4.28% (+14 bps w/w, +34 bps over two weeks—largest since April 2025). The 30-year hit 4.90% (+15 bps w/w), its third-highest close of 2026, just 19 bps off its 52-week peak of 5.09%. The 2s/10s spread compressed to ~55 bps from ~70 bps in early February as the market priced weaker growth and less accommodative policy simultaneously—a textbook stagflation signal.
• This was not a clean, safe-haven Treasury bid. Bonds initially rallied on weak GDP and spending data, but the rally faded as oil held above $100 and longer-maturity bonds underperformed. That is the key market message: inflation and energy risk are strong enough to blunt the usual bond rally you would expect from weaker growth data. Mortgage rates backed up to 6.11% as of March 12, after dipping below 6% in late February for the first time since 2022—reversing the first genuine affordability tailwind housing had seen in years.
• The fiscal premium in long-term yields is structural, not cyclical. Martha Gimbel of the Yale Budget Lab testified (March 12) that the deficit is projected at 5.8% of GDP this year, rising to 6.7% by 2036—despite sub-4.5% unemployment. Cumulative fiscal policy since 2015 has raised 10-year Treasury yields by ~97 bps, adding roughly $2,500/year to the cost of a median-priced mortgage. That premium does not go away with a ceasefire.

Dollar, Commodities & Market Dynamics

• Oil above $100 with no resolution in sight. Brent closed at $103/bbl on Friday (+11% w/w, ~+40% since the war began February 28), peaking near $120 on Monday. Goldman estimates Hormuz flows have collapsed to ~600,000 bbl/day from normal levels above 19 million; JPMorgan expects supply cuts to approach 12 million bbl/day by the end of next week. Countermeasures—record SPR releases, eased Russian sanctions—are buying time but not solving the shortage: 400 million barrels of global SPR covers roughly 29 days. Iran’s new supreme leader has vowed to keep the Strait closed.
• Dollar strengthens; stress gauges climb. The Bloomberg Dollar Spot Index rose 0.6% last week to its highest since December, reasserting the U.S.’ relative insulation as a net energy producer. Gold held near $5,019/oz, up ~70% YoY. A BofA cross-asset implied-volatility gauge jumped to 0.79, approaching the 0.89 Liberation Day peak. The S&P 500 fell for a third straight week (down ~5% from its January record), and the megacap gauge has dropped more than 10% from its all-time high.

CRE Finance Market Implications

• The rate relief that markets had been pricing into 2026 — two Fed cuts and a lower 10-year—has largely evaporated. The 10-year surged 34 bps over the last two weeks, pushing fixed-rate permanent financing costs higher. Floating-rate bridge borrowers fare no better: the near-complete repricing of 2026 rate cuts keeps SOFR-based coupons elevated. 
• Private credit stress is the second-order funding risk. Private credit funds and debt-focused alternative managers heavily intermediate bridge and construction lending in CRE. With Ares, Blackstone, and Blue Owl shares under heavy selling pressure—and redemption gates going up at BlackRock, Morgan Stanley, and Cliffwater—the availability and pricing of transitional CRE capital could tighten. This could occur not because of CRE fundamentals per se, but because of contagion from software-loan write-downs and the broader credibility crisis in the asset class. Development and value-add projects that depend on non-bank capital markets are most exposed.
• Oil, construction costs, and the consumer squeeze converge. Higher diesel prices raise shipping and materials costs for CRE development; disrupted Persian Gulf fertilizer flows and commodity supply chains add second-order input-cost pressure. Meanwhile, the consumer-spending slowdown (real spending +0.1% in January, gas prices up ~22% in two weeks) threatens rent growth in discretionary retail and hospitality. Grocery-anchored and essential-services retail remain better positioned. Industrial/logistics assets face mixed signals: higher transport costs are a headwind, but reshoring and e-commerce fulfillment needs provide structural demand.
• AI capex may pause if energy costs stay elevated. As former Bank of England chief economist Andy Haldane argued this week, AI is the most energy-intensive technology ever invented. A world of more expensive and uncertain energy risks is slowing the hyper-scaler buildout that has been a primary growth engine—and the key demand driver for data-center development. If the tech investment wave stalls, it removes one of the few forces supporting both economic growth and CRE demand in the industrial/data-center segment.

Sources: BEA, BLS, Federal Reserve, CME FedWatch, Tradeweb, Bloomberg, Financial Times, Wall Street Journal, New York Times, Yale Budget Lab, AAA, Freddie Mac, Fitch Ratings, Goldman Sachs, JPMorgan, RBC Capital Markets, Morgan Stanley, EY-Parthenon, Bank of America, TD Securities.

You can download CREFC's one-page MarketMetrics, which includes statistics covering the economy and the CRE debt capital markets, here.

Contact Raj Aidasani (raidasani@crefc.org) with any questions.

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Banking Agencies Set to Unveil Sweeping Bank Capital Overhaul

March 17, 2026

The U.S. banking agencies will release next week long-awaited proposed changes to the bank capital framework. 

• The Federal Reserve announced last Thursday a March 19 (10am ET) Board meeting to vote on releasing the proposals. 
• The Federal Deposit Insurance Corp (FDIC) shared details on Friday about a meeting at the same time. 

In a Q&A session following a March 12 speech at the Cato Institute, Fed Vice-Chair Michelle Bowman said a 90-day comment period would follow the publication of the proposals.

• She did not provide an implementation date, stating they were trying to coordinate with other jurisdictions. 

Why it matters: The capital revisions, which Bowman described as a “recalibration,” are designed to loosen restrictions, spur more lending, and pull mortgage business back into the traditional banking system. 

• A revised Basel III framework implements the final phase of the 2017 international agreement, with U.S.-specific adjustments. It also establishes a single approach (rather than mandating two sets of risk-based capital ratios) to calculate the risk-based capital requirements for the largest banks.
• A standardized approach proposal modifies risk-based capital calculations for most banks, “improving risk alignment while preserving a simple framework.”
  • The changes address “critical categories” of bank lending, including mortgages, consumer lending, and business lending.
  • They also require large banks to include elements of accumulated other comprehensive income (AOCI) in common equity tier-1 capital, aligning with requirements at the largest institutions.
• The above proposals eliminate any requirement to deduct mortgage servicing assets from regulatory capital, instead assigning a 250 percent risk weight to these assets.
• A G-SIB surcharge proposal aligns this calculation with the international method. It also indexes the surcharge to economic growth going forward

Impact on Bank Capital: Bowman stated that these changes are expected to produce a "small increase" in capital for large banks. The increase, however, will likely be offset by the G-SIB surcharge modifications.

Broader context: The proposals reflect the administration’s deregulatory push. 

• As Bowman noted, regulators have reduced the enhanced supplementary leverage ratio for G-SIBs and proposed changes to the stress tests.
• As covered in previous CREFC Policy & Capital Markets briefings, the banking regulators have reduced staff in enforcement divisions and directed supervisors to focus only on “material financial risks.”

What they are saying:

• As reported by Politico, bank trade groups welcomed the approach in a joint statement, calling it "a thoughtful, bottom-up approach." 
• However, Senate Banking Committee ranking member Elizabeth Warren (D-MA) stated: "Trump's bank regulators, once again, are handing the big banks exactly what they want — a weak rule that fails to address the severe flaws in the capital framework."

What’s next: CREFC will issue an Alert following publication of the proposals. 

• We will follow up with a more detailed analysis as we develop our feedback on the proposal.

If you have questions or would like to join the Bank Capital Working group, contact Sairah Burki (sburki@crefc.org). 

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CRE Securitized Debt Update

March 17, 2026

Private-Label CMBS and CRE CLOs

Six transactions totaling $3.9 billion priced last week:

1. GSREFT 2026-FL1, a $1.1 billion CRE CLO sponsored by Goldman Sachs Asset Management. The initial pool of the managed transaction comprises 23 loans secured by 32 properties. The pool comprises multifamily (67.1%), industrial (22.4%), and hotel (10.5%).
2. BAR 2026-FL1, a $1 billion CRE CLO sponsored by Barings. The initial pool of the managed transaction comprises one whole loan and 19 loan participations secured by 21 properties across nine states and Washington, D.C. The pool’s top three property types are industrial (31.3%), multifamily (28.9%), and office (12.9%).
3. ARCREN 2026-FL1, a $762.6 million CRE CLO sponsored by Arbor Realty Trust. The initial pool of the managed transaction comprises 11 whole loans and four loan participations, secured by 15 multifamily properties across 10 states. The pool is 100% multifamily.
4. ARES1 2026-AZURE, a $500 million SASB backed by a floating-rate, five-year loan (at full extension) for Ares to acquire 36 industrial properties across 13 states.
5. GSMS 2026-DAWN, a $425 million SASB backed by a fixed-rate, five-year loan for CBL Properties to refinance 13 regional malls in nine states.
6. MLTI 2026-FAM1, a $121 million CRE CLO sponsored by A&E Real Estate Finance, LLC (AEREF), a joint venture between Peter Kraus, Jon Estreitch, Oaktree Capital Management, and A&E Real Estate Holdings, LLC. The pool of the static transaction comprises multifamily (60.3%) and mixed-use (39.7%).

By the numbers: YTD 2026 private-label CMBS and CRE CLO issuance totaled $39.7 billion, down 1% from the $40.1 billion for same-period 2025.

Spreads Mixed

• Conduit AAA and A-S spreads were unchanged at +78 and +105, respectively.
• Conduit AA and A spreads were each 10 bps wider, at +145 and +205, respectively.
• Conduit BBB- spreads were unchanged at +450.
• SASB AAA spreads moved by +4 to +5 bps, depending on property type, to a range of +108 to +177.
• CRE CLO AAA and BBB- spreads were unchanged at +145/+150 (static/managed) and +350/+360 (static/managed), respectively.

Agency CMBS

• Agency issuance totaled $3.6 billion last week, comprising $1.7 billion in Fannie DUS, $1.6 billion in Freddie K and Multi-PC transactions, and $358.9 million in Ginnie-Mae Project Loan transactions.
• Agency issuance for YTD 2026 totaled $38.4 billion, 43% higher than the $26.8 billion recorded for same-period 2025.

Contact Raj Aidasani (raidasani@crefc.org) with any questions.

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