Economy, the Fed, and Rates…
July 28, 2026
Economic Data & Labor Market
- Growth held near trend with a better mix, but the second half looks softer. Bloomberg Economics estimates second-quarter GDP grew at a 2.0% annualized rate, close to the first quarter's 2.1%, with consumer spending accelerating to 2.4% from 0.5% and AI-related equipment spending rising at a 14.2% rate, against a 1.44 percentage point drag from net exports. Goldman Sachs on July 24 flagged second-half growth running below the first half's 2.25% pace.
- The claims print flattered a labor market that is stable, not tight. Initial claims fell 22,000 to 187,000 in the week ended July 18, the lowest since 1969 and far below the 210,000 consensus, though Bloomberg Economics attributes most of the decline to imperfect seasonal adjustment and looks for a rebound near 200,000. Continuing claims held at 1.8 million and unemployment is 4.2%, but June payrolls added only 57,000, roughly half of forecasts. Few layoffs alongside soft hiring is what lets the Fed concentrate on inflation.
- Tech payrolls and AI capital spending are moving in opposite directions. U.S. technology companies have announced nearly 140,000 job cuts in 2026, with Amazon, Oracle, Meta and Microsoft accounting for almost 50,000. Amazon, Alphabet, Meta and Microsoft plan a combined $725 billion of capital expenditure this year. Operating expense is being converted into capital expenditure, which is why the labor data and the investment data keep telling different stories.
- Post-pandemic job growth is extraordinarily concentrated by geography. A Dallas Fed analysis of BLS data counts nearly 7 million jobs added nationally since February 2020, with the Atlanta (23.3%), Dallas (22.2%), San Francisco (20.2%) and Richmond (11.1%) districts accounting for more than three-quarters of the total against 32,600 jobs in Boston. The national aggregates mask a distribution that maps directly onto multifamily and industrial demand.
Federal Reserve Policy
- The July 28–29 meeting is a live decision. Futures ended the week pricing between roughly one-in-three and 38% odds of a quarter-point increase to 3.75%–4.00%, up from about 13% a week earlier, with roughly 80% odds of at least one increase by the September 16 meeting.
- Bloomberg Economics still expects a hawkish hold. June CPI at 3.5% year over year, the largest single-month decline in six years, and a June employment report showing no wage-driven overheating give officials reason to wait. BE looks for the target range unchanged at 3.50%–3.75%, with Chair Kevin Warsh stressing that inflation remains too high and keeping September in play, and estimates June core PCE rose 0.18% with headline inflation easing to 3.7%.
- The case for hiking is no longer a minority view. Headline PCE at 4.1% in May is more than double target, and core PCE has climbed from 2.8% last October to 3.4%. Half of the 18 participants at the June meeting expected to raise rates this year. Lorie Logan has argued for tightening modestly now rather than severely later, and Lisa Cook, Christopher Waller and Philip Jefferson have said a hike becomes harder to postpone if the inflation outlook does not improve.
- Warsh's guidance retreat is itself a market variable. The chair removed the policy bias, shortened the statement, and wants meetings whose outcomes are not settled in advance. With less guidance, the market has more room to price the outcome it thinks the Fed should deliver – or to force one. The MOVE index hit a two-month high on July 23, and Bank of America's rates desk argues that declining to deliver a priced hike is itself an easing.
Treasury Yields & Bond Markets
- Treasuries had their worst week since May, led by the front end. The 2-year rose 16 bps to 4.33%, the 10-year rose 14 bps to 4.68%, and the 30-year rose 10 bps to 5.16%. The 2-year and 10-year finished at their second-highest levels of 2026, each within 3 bps of 52-week highs set July 23; the 30-year closed 2 bps below its 52-week high of 5.18% from May 19.
- The curve bear-flattened, which reads as a policy trade rather than an inflation scare. 2s10s narrowed 2 bps to 35 bps, and 10s30s narrowed 4 bps to 48 bps as the short end led. Short rates had been grinding higher through May and June even while oil fell, so energy is an accelerant rather than the cause. The asymmetry into next week is clean: a hike flattens further by lifting the assumed terminal rate, while a hold that is not convincingly explained pushes long rates higher.
- The long end's problem is structural and global. The 30-year has closed above 5% on 27 days in 2026, including 12 consecutive sessions, the longest run since 2007 – and with the policy rate 150 bps below its 2007 level. The 30-year real yield has risen about 50 bps this year toward 3%, and the 10-year term premium sits near 80 bps against annual federal interest cost above $1 trillion. The Bloomberg Global Treasury Index average yield reached 3.68% on July 23, its highest since 2008.
- AI issuance is now a direct competitor for long-duration capital. Goldman Sachs estimates AI-related companies will borrow more than $480 billion in 2026, up from $322 billion in 2025. The weighted average spread on large AI-related corporate bonds has widened to 157 bps from 136 bps at the start of the year, concentrated in the hyperscalers, while chipmaker spreads have held. Alphabet shed 7% of its market value within a day of lifting 2026 AI investment guidance above $200 billion.
Dollar, Commodities & Market Dynamics
- Oil round-tripped $100 and left a higher floor behind. Brent breached $100 on July 23 for the first time since May, roughly 25% above its level at the June FOMC meeting, before easing back below $100 on July 24 as WTI settled at $90.03. The emergency 400 million-barrel drawdown of global inventories concludes in the third quarter, removing the market's primary shock absorber and raising the odds that further supply deficits clear through demand destruction.
- The energy shock is reaching households directly. Retail gasoline averaged $4.10 a gallon on July 24, up from $3.78 two weeks earlier and within range of the 2026 high of $4.55. With outsized tax refunds fading and borrowing costs rising, second-half consumption should slow even as banks report low delinquencies.
- Equities absorbed the week better than bonds, with the strain concentrated in AI. The S&P 500 was little changed on July 24 while the Nasdaq 100 fell 1.15% and a semiconductor gauge dropped 4.3%. About 85% of S&P 500 companies reporting so far have beaten profit estimates, the highest share in five years, which offsets macro risk without eliminating it. The dollar was little changed.
Policy & Politics
- The tariff wall was rebuilt on firmer legal ground. Section 301 forced-labor duties of 10% to 12.5% took effect July 24 across roughly 60 economies, replacing the 10% global Section 122 tariff that expired the same day. Bloomberg Economics estimates the swap lifts the average effective U.S. tariff rate about 0.1 percentage point to 10.7%, below the 13.5% that prevailed before February's Supreme Court ruling; unlike Section 122, these duties have no expiry. Watch: a pending excess-capacity investigation covers 16 economies accounting for roughly three-quarters of U.S. imports.
- Fed independence is being contested through personnel rather than policy. An external review of the 2023 Silicon Valley Bank failure, commissioned by Vice Chair for Supervision Michelle Bowman, is being weighed by administration allies as a possible cause-based route to remove Governor Michael Barr, a month after the Supreme Court blocked the attempted removal of Governor Lisa Cook without defining the standard. The market consequence is a reaction function that is harder to forecast, which shows up in term premium.
CRE Finance Market Implications
- Benchmark and execution costs both moved against borrowers. A 10-year at 4.68% worsens the economics of fixed-rate permanent financing for 2026 maturities, while a live hike debate removes any credible expectation of near-term SOFR relief for floating-rate bridge and construction paper. Rate volatility at a two-month high raises rate-lock and hedging costs and widens execution risk between application and closing, particularly for securitized takeouts.
- Bank capacity is returning, but selectively. Bank of America and U.S. Bancorp reported second-quarter CRE balances up more than 8% year over year, with Truist up about 25% and PNC up 15%. First-quarter originations rose more than 50% year over year, including an 80% increase from depositories. The capital is going to multifamily, industrial, and data-center-adjacent credit under tighter standards, not to legacy office or over-levered transitional assets.
- Housing weakness keeps feeding rental demand. The 30-year fixed mortgage rate rose for a third straight week to 6.58% on July 23, the highest in nearly a year, and June new-home sales rose 1.6% to a 628,000 annualized pace only on discounting – the median price fell 2.7% year over year against 9.3 months of inventory. Households priced out at 6.58% stay renters, supporting multifamily absorption even as the same rate backdrop pressures valuations.
- Construction budgets are absorbing the AI build-out's cost without its volume. Data-center construction spending rose 23% year over year in May but is only 8% of private nonresidential construction, while manufacturing – nearly a quarter of the category – fell 22% to a $174 billion annualized rate. Weighting decides the outcome: 8% growing 23% adds under 2 points to category growth, 24% falling 22% subtracts more than 5. Data centers are too small to hold up volume but large enough to set input prices, since the same transformers, switchgear and electrical labor serve every project – nonresidential materials costs are more than 55% above early-2020 levels, and some electrical equipment backlogs exceed two years. The rest of the market pays those prices on projects underwritten to industrial, retail and multifamily rents, so pre-2024 hard-cost budgets keep coming back unfundable while rising replacement cost supports standing-asset values.
- CRE CLO loss recognition is deferred rather than resolved. KBRA identified only 33 reported principal losses across 6,919 loans in 227 CRE CLOs issued between July 2013 and March 2025, an outcome reflecting loans bought out of trusts as much as collateral performance. A preliminary Philadelphia Fed working paper found that in one $1.7 billion 2021 Arbor deal, 42 of 59 loans had been modified by June 2025 against $18.5 million of appraisal reductions, versus a potential $275 million on full reappraisal. That makes reported loss rates a read on sponsor capacity rather than collateral quality: they stay low while managers can absorb buyouts on balance sheet, and register impairment only once they cannot.
Sources: Bloomberg; Financial Times; Wall Street Journal; New York Times; Washington Post; MarketWatch; The Real Deal.
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.