Economy, the Fed, and Rates…
November 25, 2025
Economic Data & Labor Market
- September jobs report delivers mixed signals after 7-week delay. The economy added 119,000 jobs in September, far exceeding economists’ expectations of 50,000, marking the strongest gain in five months. However, unemployment rose to 4.4%, the highest level since October 2021. Downward revisions cut 33,000 from prior months, with August now showing a loss of 4,000 jobs—only the second negative print since Covid.
- Consumer sentiment craters to near-record lows. The University of Michigan’s November index fell to 51, hovering near historic lows as Americans’ views of personal finances hit the weakest levels since 2009. Survey director Joanne Hsu noted that “consumers remain frustrated about the persistence of high prices and weakening incomes,” with buying conditions for big-ticket items at the lowest level on record.
- Weekly jobless claims show labor market stress building. Continuing unemployment claims rose to 1.974 million for the week ended November 8, the highest since November 2021, reflecting a low-hire environment in which laid-off workers struggle to find new positions. The Cleveland Fed reported layoff notices surged in October with 39,000 warnings—among the highest since 2006.
Federal Reserve Policy
- December rate-cut prospects swing wildly amid Fed divisions. Markets are pricing ~80% odds of a December rate cut after NY Fed President John Williams said he sees “room for a further adjustment in the near term,” up from ~50% a week prior. Williams emphasized that “downside risks to employment have increased as the labor market has cooled, while upside risks to inflation have lessened somewhat.”
- Internal Fed fractures deepen over inflation concerns. Fed Governor Michael Barr joined the cautious camp, warning “we’re seeing inflation still at around 3% and our target is 2%,” while Cleveland Fed President Beth Hammack opposed further cuts, arguing they could “prolong this period of elevated inflation” and encourage risk-taking in financial markets. The divide threatens decades of consensus-based policymaking.
- Street over-pricing cuts? Vanguard’s fixed-income chief Sara Devereux argues the market is banking on too many 2025–26 rate cuts; she sees one or two more, with AI-led capex keeping growth resilient and limiting the Fed’s scope to ease.
- Politicization concerns. The decision-making environment is further complicated by external political pressure, with President Trump advocating for immediate rate reductions and Treasury Secretary Scott Bessent publicly pressing for lower rates. Analysts warn that this dynamic, combined with a fractured FOMC, could threaten the consensus-driven culture that has defined the Fed for decades.
Treasury Yields & Market Dynamics
- Yields react to policy shifts. The 10-year Treasury yield retreated nine bps last week to 4.06%, as bond traders revived bets on monetary easing. However, skepticism remains deep; bond markets have struggled to maintain a consistent direction amidst the “data void” and conflicting Fedspeak.
- Systemic risk warning. In a significant intervention regarding financial stability, Fed Governor Lisa Cook warned that the “basis trade”—a popular arbitrage strategy used by hedge funds to exploit price differences between cash Treasuries and futures—has grown substantially and poses a risk to market functioning during stress events. Cook noted that hedge fund exposure to Treasuries has surged, potentially magnifying instability if these crowded positions are forced to unwind rapidly.
- Bitcoin collapse accelerates toward worst month since 2022. The cryptocurrency plunged below $84,000, down over 30% from October’s record high and on an 11-day losing streak—the longest since 2010. The $19 billion leveraged crypto liquidation in October triggered forced selling across markets, with analysts warning investors may be liquidating stocks to meet margin calls.
CRE Finance Market Implications
- Financing costs and cap rate uncertainty. If the “hawkish” faction of the Fed prevails and rates remain restrictive into 2026, the anticipated relief for floating-rate borrowers and refinancing pipelines will evaporate, keeping cap rates elevated and putting downward pressure on asset values.
- Office and corporate usage. Corporate consolidation trends continue to emerge, such as Amazon’s Ring division ordering workers to relocate to central hubs. While this enforces return-to-office mandates, it also signals a potential shedding of satellite office space, reinforcing the bifurcation of the office market into “winner take all” Class A hubs versus obsolete peripheral assets.
- Liquidity risks via the basis trade. Lisa Cook’s specific warning regarding the “basis trade” is critical for CRE lenders to monitor. As this trade provides significant liquidity to the Treasury market, which serves as the benchmark for CRE pricing, a disorderly unwind (similar to March 2020) could trigger a sudden liquidity freeze and a spike in spreads, making execution for CMBS and balance-sheet lending complicated regardless of Fed policy.
You can download CREFC’s one-page MarketMetrics, which includes statistics covering the economy and the CRE debt capital markets,
here.