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Economy, the Fed, and Rates…

July 14, 2026

Economic Data & Labor Market

• Inflation sits at a three-year high, but June should bring the first headline relief. May CPI held at 4.2% year-over-year, with core CPI at 2.9% and core PCE at 3.41%. Bloomberg Economics expects the June report (July 14) to show headline CPI falling roughly 0.1% month-over-month on a 9.2% drop in gasoline prices, easing the annual rate to about 3.9% and confirming May as this year’s peak, with core up a subdued 0.2% (roughly 2.8% year-over-year). The pressure points are rotating from energy toward memory-chip-driven electronics, elevated airfares, portfolio-management fees, and World Cup travel costs. Watch: June PPI follows on July 15, with the headline rate standing at 6.5% year-over-year.
• Consumers are refusing the price increases companies are trying to pass through. PepsiCo’s North American snack volumes were flat and organic revenue fell 2% after price cuts, even as management warned that fuel, packaging, and logistics costs will lift input-cost inflation in the second half; its international divisions all grew revenue at least 10%. U.S. households are still spending but trading down – limiting energy and tariff pass-through and squeezing corporate margins instead.
• The labor market is stable on the surface and stagnant underneath. Unemployment held at 4.2%, but the broader dashboard is soft: the share of consumers calling jobs plentiful keeps falling, the Atlanta Fed wage tracker continues to slow, service-sector employment surveys remain in contraction, small-business hiring plans are tepid, and JOLTS hires and separations describe a low-churn standstill. The Fed’s semiannual monetary policy report judged wage growth consistent with 2% inflation for the first time in five years – today’s inflation is not a labor-cost story, which strains the Fed’s usual analytical models.

Federal Reserve Policy

• The June minutes put a rate increase on the table without a consensus to move. A few participants saw a case for hiking at the June meeting, the committee viewed inflation risks as skewed to the upside, and nine of 19 officials penciled in at least one 2026 hike in the June projections. The underlying arithmetic: with the funds rate at 3.50%–3.75% and inflation running between 3% and 4%, the real policy rate is near zero – policy may be delivering stimulus the economy no longer needs.
• A July 28–29 hike is possible but not the base case. Markets entered the week pricing roughly a 24% probability of a July move and nearly 50 bps of cumulative tightening through April 2027. Bloomberg Economics counters that tightening into a supply-driven, likely transitory shock would trim inflation by only about 0.1 percentage point while adding roughly 680,000 to the unemployment rolls by 2027–2028, and expects the Fed to hold this year. Governor Waller – who led the case for last year’s three cuts – now says the risk balance has flipped entirely. Tuesday’s CPI and Warsh’s July 14–15 testimony are the immediate tests of whether July is live.
• Warsh’s no-guidance experiment is becoming a market variable of its own. Eliminating forward guidance is one thing; withholding the reaction function – how the Fed would respond to different inflation, labor, and growth outcomes – is what has investors and colleagues, Governor Waller included, publicly frustrated. Until the reaction function is legible, data surprises will produce outsized moves in Treasury yields and SOFR expectations. New York Fed President Williams offered one marker: monthly core PCE of 0.2% or less in the second half keeps policy on hold; persistently faster readings would require a response. He also named AI-driven demand – the one pressure interest rates can actually restrain – as his principal inflation concern.
• Institutional change is coming – task forces plus a PCE makeover. Warsh’s five task forces are led by fifteen credible, bipartisan heavyweights (Rajan, Stein, King, Fraga, Chetty, Mankiw, and Sargent among them), and the communications group is stacked with figures likely to recommend replacing the dot plot with a scenario-based quarterly report. Separately, the BEA’s September update to PCE methodology could have lowered measured core inflation by roughly 0.1–0.3 percentage point had it applied to current data – a timely assist for officials who want to stay on hold.

Treasury Yields & Bond Markets

• The selloff ran across the entire curve. Per Bloomberg: the 2-year rose to 4.21% from 4.14%, the 10-year to 4.56% from 4.48%, the 30-year to 5.06% from 4.99%, and the 3-month to 3.78% from 3.75%. Yields have risen for two consecutive weeks – for the 10-year, the largest two-week climb since May 2026 – leaving it up 21 bps from a year ago and roughly 10 bps below its 52-week high (May 19, 2026). The 30-year is back above the 5% threshold, up 19 bps year-over-year, and the 2-year sits within a few basis points of its own 52-week high.
• The curve steepened at the front, and real yields did the damage. The 3-month/10-year differential widened to 78 bps from 73 bps – a spread that stood at zero a year ago – while the 10-year/30-year gap held at 50 bps. The more consequential move is in inflation-adjusted terms: 10-year real yields reached an 18-month closing high near 2.3%, up roughly 40 bps year-to-date, and 30-year TIPS yields are at 18-year highs approaching 3%. Real yields are the discount rate for long-duration assets, and they are grinding higher even with last year’s three Fed cuts in the books.
• Floating-rate relief has stalled. 1-month Term SOFR ticked up to 3.68% from 3.67% and sits 66 bps below its year-ago level – but the descent has stopped, and with markets pricing net tightening into 2027, the forward curve no longer offers borrowers a credible near-term story of falling coupons.

Dollar, Commodities & Market Dynamics

• Hormuz is back as the dominant near-term macro risk. The U.S. and Iran exchanged fresh strikes over the weekend while issuing conflicting declarations on whether the Strait is open to shipping; Brent rallied about 5% at Monday’s open (July 13) toward $79 per barrel after WTI closed Friday at $71.52. Markets increasingly treat the Strait as a continuum rather than a binary open-or-closed question – the 1980s Tanker Wars template – which explains the muted pricing, but second-round inflation exposure runs through jet fuel, fertilizer, plastics, aluminum, and natural gas.
• The food-price channel is the sleeper risk. Fertilizer prices rose more than 30% early in the conflict – New Orleans urea touched $780 in mid-April – and a prolonged Gulf disruption layered on El Niño crop risks across Asia and Africa could keep food inflation sticky well after the energy impulse fades. For a Fed already debating a hike and an administration facing midterms, stubborn grocery inflation is the politically loudest kind.
• Equities are priced for perfection into earnings season. The S&P 500 rose to 7,575 from 7,483 and the Nasdaq to 26,282 from 25,833, while the Dow slipped to 52,637 from 52,900. Analysts have raised earnings estimates for all 11 S&P 500 sectors – a configuration last seen in late 2021, just before the 2022 rate shock and earnings recession – at the same time real yields sit at multi-year highs. Maximal expectations plus rising discount rates leave little room for disappointment when banks kick off reporting on July 14.

Policy & Politics

• The White House is trying to jawbone prices down. With inflation at a three-year high and 67% of polled voters disapproving of the administration’s cost-of-living record, President Trump has claimed credit for Walmart’s markdowns and told fuel retailers to target $2.50 per gallon – gasoline averages $3.88, roughly 30% above its level before the war began in February, and the conflict has cost the average household more than $500 in fuel. Targeted discounts may follow, but jawboning does not remove the underlying energy, tariff, and freight drivers – and economists across the spectrum warn the interventions distort markets in ways that outlast any administration.
• Japan is prodding capital home – a global long-end story. Tokyo announced it will push its large institutional investors, including the $1.6 trillion Government Pension Investment Fund, to bring money back onshore, triggering the largest one-day move in 10-year Japanese government bonds since last year’s tariff shock. A durable shift of Japanese capital homeward would remove a marginal buyer of global duration – Treasuries included – just as U.S. supply and term-premium concerns re-emerge.

CRE Finance Market Implications

• Both legs of the financing stack moved against borrowers. A 10-year at 4.56% – up 8 bps on the week and 21 bps year-over-year – directly pressures proceeds, debt-service coverage, and the refinancing math on 2026–2027 maturities, while 1-month Term SOFR at 3.68%, with markets pricing possible hikes rather than cuts, removes the floating-rate glide path many bridge and construction borrowers underwrote.
• Rate volatility is now a standalone execution cost. An opaque Fed reaction function plus a live geopolitical shock means wider swings around Treasury locks and hedges – a real cost for CMBS loan aggregation, conduit pricing, and borrowers deciding when to come to market. Expect wider bid-ask on both loans and bonds around Tuesday’s CPI-plus-testimony collision and again into the July 28–29 meeting.
• AI is simultaneously CRE’s strongest demand engine and a new cost channel. Meta committed an additional $40 billion to its Louisiana data-center campus, taking the site past $250 billion – emblematic of the capital wave supporting data centers, power infrastructure, and advanced manufacturing. But the same demand is driving unusually steep price gains in semiconductors and electrical equipment, raising hard costs for any development budget that touches power or electronics and competing with the rest of CRE for labor, equipment, and capital.
• Consumer-facing assets warrant conservative underwriting. PepsiCo’s U.S. results are a clean read on stretched household budgets: needs-based and grocery-anchored retail remain better positioned, while discretionary retail, restaurants, and lodging stay exposed if fuel prices spike again or the low-churn labor market weakens further.
• Housing strain supports the multifamily demand channel, not multifamily economics. With the average 30-year mortgage at roughly 6.58% in early July, applications falling, and builder sentiment still depressed, elevated rates keep would-be buyers renting – supportive for apartment demand at the margin – even as skilled-trade shortages and elevated trucking spot rates keep development and operating budgets under pressure; builders themselves are tilting toward multifamily starts, particularly in the Northeast.

Sources: Financial Times; Bloomberg; Wall Street Journal; Dow Jones/Tradeweb.

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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Spotlight on Servicing: The State of CRE Servicing – Midyear 2026

July 14, 2026

On July 10, 2026, CREFC released The State of CRE Servicing – Midyear 2026, the second report in our Spotlight on Servicing educational series focused on the loan servicing business.

Drawing on discussions from last month’s CREFC Annual Conference, the report discusses the key servicing themes that emerged across multiple sessions and explores what they reveal about the current state of CRE servicing. The report covers the emergence of new servicers in the market and evolving investor expectations due to the growing demand for timely, transparent loan reporting, and provides a timely overview of the issues shaping today's servicing landscape.

One highlight of the report is the creation of a new Data Center property type as part of the investor reporting package (IRP), including a new Operating Statement Analysis Report (OSAR) and property-specific watchlist criteria and guidelines.

The IRP committee leadership is establishing a data center working group consisting of servicers, issuers, investors and rating agencies to formulate a reporting framework and timeline for implementation. 

Interested parties should reach out to Rich Carlson (rcarlson@crefc.org) to be included.

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CRE Securitized Debt Update

July 14, 2026

Private-Label CMBS and CRE CLOs

Two transactions totaling $1.2 billion priced last week:

1. LBA 2026-LBA6, a $950 million SASB backed by a floating-rate, interest-only loan that Wells Fargo and JPMorgan Chase are originating for LBA Logistics, Blackstone, and GIC to refinance 41 industrial properties totaling 8.3 million sf across 10 states. The portfolio, managed by LBA, is 84.8% occupied by 66 tenants with a 4.7-year WALT; top markets are Chicago (17.3% of NOI), Philadelphia (12.6%), and Seattle (8.6%), and top tenants include Amazon (6.3% of gross rent), Sonoco Products, DHL, Global Mail, FedEx, Samsonite, and Dollar General. The loan has a two-year initial term plus three one-year extensions; proceeds retire $930.3 million of existing debt, including the prior BX 2022-LBA6 CMBS loan, and cover closing costs. Blackstone and GIC each hold 45% of the portfolio equity, with LBA holding the remaining 10%.
2. RWC 2026-1, a $285.1 million small-balance multifamily CMBS backed by 54 fixed-rate, five-year, interest-only loans that RWC Lending recently originated on 54 properties across 17 states. The loans average $5.3 million, with 37.3% of the pool concentrated in the Greater New York City area; the collateral primarily comprises garden-style (41.6%), midrise (28.1%), and townhouse (18.5%) properties. The largest loan is a $26.3 million mortgage on a 55-unit apartment building at 15 Bond Street in Great Neck, N.Y. Nomura was the sole lead manager, and RWC is retaining Classes E through G for risk retention.

By the numbers: YTD 2026 private-label CMBS and CRE CLO issuance totaled $100.3 billion, up 21% from the $82.9 billion for the same period last year.

Spreads Hold Steady, Except Data Centers

• Conduit AAA and A-S spreads were unchanged at +70 and +100, respectively.
• Conduit AA, A, and BBB- spreads were unchanged at +130, +175, and +415, respectively.
• SASB AAA spreads ranged from +85 to +175 across property types and structures. Data-center bonds were the exception to the otherwise steady market, with fixed-rate AAA through A widening 5 to 13 bps and floating-rate AA through BBB widening 2 to 5 bps.
• CRE CLO AAA spreads were unchanged at +130/+135 (static/managed); BBB- spreads were unchanged at +300 for both.

Agency CMBS

• Agency issuance totaled $3.4 billion last week, comprising $2.5 billion in Freddie Multi-PC transactions, $546.9 million in Fannie DUS, and $356.9 million in Ginnie transactions.
• Agency issuance for YTD 2026 totaled $89.3 billion, 26% higher than the $71.1 billion recorded for the same period in 2025.
  

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