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Banking Regulators Issue Long-Awaited Bank Capital Proposals

March 24, 2026 

On March 19, the banking regulators issued the long-awaited bank capital proposals, with comments due June 18, 2026. 

• CREFC and Mayer Brown will hold a webinar on Wednesday, March 25 at 3pm ET to cover the proposals’ key recommendations and our initial views on implications for CRE finance. Please click here to register.

The below two proposals were issued by all three agencies, the Federal Reserve Board, the Federal Deposit Insurance Corp (FDIC), and the Office of the Comptroller of the Currency (OCC):

• Proposed revisions to the risk-based capital framework applicable to the largest, most internationally active firms and to firms with significant trading activity (Basel III proposal)
  
• Proposed regulatory capital and standardized approach for risk-weighted assets (standardized approach proposal)

The G-SIB Surcharge proposal was issued by the Fed:

• Proposed risk-based capital surcharges for Global Systemically Important Bank holding companies (GSIB surcharge proposal)

The accompanying Board Memo states that the:

• Basel III proposal would revise the risk-based capital requirements that apply to the largest, most internationally active firms (Category I and II firms) and simplify the framework by subjecting firms to a single set of risk-based capital calculations;
• GSIB surcharge proposal would improve the measurement of systemic risk in the framework that determines the surcharge that applies to the largest and most complex banks; and
• Standardized approach proposal would revise the U.S. standardized approach, which applies to most banks, to better align capital requirements with the risk of traditional lending activities.

The regulators estimate the following capital impacts:

• Aggregate common equity Tier 1 capital requirements of Category I and II firms would decrease by 2.4% under the proposals (a 1.4% increase due to the Basel III proposal and a 3.8% decrease due to the GSIB surcharge proposal).
• The standardized approach proposal would decrease the aggregate common equity Tier 1 capital requirements of Category III and IV firms by 3.0% and of smaller banking organizations by 7.8%

Initial high-level takeaways for CRE:

• The standardized approach proposal recommends that risk weights for non-construction commercial real estate loans decrease from 100% to 95%. Table V.4: Impact on Risk-Weighted Assets on page 129-130 provides a summary of risk-weight impacts across assets.
  • Securitization risk-weights also would decline. Additionally, the proposal reduces the minimum risk weight for senior securitization positions from 20% in the current standardized approach to 15%.
  • The threshold-based deduction of mortgage servicing assets (MSAs) has been removed. All MSAs would receive a 250% risk weight under the proposal
• The Basel III proposal goes into significant detail on the treatment of CRE, including the definition of what constitutes regulatory commercial real estate exposures and accompanying risk-weights.
  • It allows for more granular capital treatment than the standardized approach.
    
  • Unfortunately, one of CREFC’s concerns related to the 2023 proposal reappears in this proposal: although common mezzanine/SPE financing structures are economically equivalent to first-lien lending, they continue to be penalized under a definition that requires a direct property security interest.

These proposals are the culmination of many years’ work to implement the 2017 international Basel agreement on bank capital requirements.

• In July 2023, the banking agencies jointly issued the notice of proposed rulemaking to implement the Basel III Endgame, which would have raised core equity Tier 1 capital for large and complex banks by 16%.
  • The banking industry fiercely opposed it, and it was never finalized.
  • The proposal also had negative implications for CRE finance, particularly given the onerous capital treatment of securitizations and warehouse lending. CREFC submitted a comment letter highlighting its concerns and led a joint letter from real estate industry groups.
• In September 2024, then Fed Vice Chair for Supervision Michael Barr announced a re-proposal attempt, but that effort stalled when President Trump took office and Barr stepped down.

What’s next: As noted above, CREFC and Mayer Brown, who is serving as drafting counsel on our comment letter, will hold a webinar on March 25 at 3pm ET.

Please contact Sairah Burki (sburki@crefc.org) with questions or if you want to join the CREFC Bank Capital Working Group.

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Economy, the Fed, and Rates…

March 24, 2026

Economic Data & Labor Market

• Largest oil supply shock in a generation redefines the macro backdrop. The Strait of Hormuz—roughly a fifth of global oil and LNG—remains near a standstill entering the war’s fourth week. Brent closed at $112/bbl (+~50% since February 28); WTI at ~$98. Saudi officials project prices could exceed $180 if disruptions persist into late April.
• The labor market is signaling weak hiring, not mass layoffs. Initial jobless claims fell 8,000 to 205,000 (lowest since January); continuing claims edged up to 1.86 million. Payrolls averaged just +17,000/month in January–February, and February showed a net loss of 92,000 jobs. Firms are not aggressively firing, but hiring is not strong enough to absorb another shock cleanly.
• Housing is no longer getting help from declining mortgage costs. New-home sales plunged nearly 18% in January to a 587,000 annualized pace—the lowest since 2022 and below all Bloomberg survey estimates. Mortgage rates have jumped the most in nearly a year over the past two weeks as the war repriced the rate outlook.
• Fiscal support is running against the growth scare. Roughly $200b from lower taxes and refunds, plus a potential $200b Pentagon supplemental, are hitting an economy that already was slowing (Q4 GDP decelerated to 0.7% annualized; February payrolls contracted 92,000). Whether demand stays firm enough to prevent easing—or soft enough to require it—is the central tension for the Fed.

Federal Reserve Policy & the Warsh Transition

• Fed holds at 3.50–3.75%; Powell’s framework - tariffs first, oil second. One dissent (Miran, favoring a cut). Powell conditioned any future ease on seeing tariff-driven goods inflation pass through—before even addressing energy. Core PCE is running at an estimated 3.0%, and non-housing services inflation has been stuck at ~3.5% for a year. The updated SEP raised 2026 PCE to 2.7% (from 2.4%); the median still shows one cut.
• Rate-hike talk surfaced for first time this cycle. Powell said “several” participants discussed the possibility. Globally, Australia hiked outright; the BOE voted unanimously to hold and scrapped forward guidance that the next move was a cut; the ECB’s Nagel suggested a hike as soon as April. Central banks can look through a temporary shock only if underlying inflation is behaving—and it isn’t.
• The Warsh transition remains a live complication. Powell will serve as chair pro tempore if Warsh is unconfirmed by May, and has no intention of leaving the Board while the DOJ probe continues. Senator Tillis is blocking Warsh’s confirmation vote; U.S. Attorney Pirro is appealing a judge’s rejection of Fed subpoenas. Bessent called Powell’s decision to stay contrary to historical norms. Treasuries hit session lows, and stocks posted their worst Fed-day decline since 2024 after Powell’s remarks.

Treasury Yields & Bond Markets

• Three straight weeks of higher yields; short end doing most of the damage. The 2-year closed at 3.90% (+53 bps over three weeks, +18 bps this week)—highest since July 2025 and now above the Fed’s 3.75% upper target bound for the first time since the hiking cycle. The 10-year hit 4.38% (+44 bps/3 weeks), the highest since August. The 30-year reached 4.94% (+33 bps/3 weeks), just 15 bps from its 52-week high of 5.09%.
• Market pricing has flipped from cuts to potential hikes. Zero chance of a 2026 cut is now priced in, having started the war with two cuts priced in. Futures briefly showed ~50% odds of a 25 bp hike by October, before settling around 27% by close (CME). Next cut priced: July 2027.
• The market’s real fear is duration of the war, not the one-week spike. Critically, 5-year/5-year forward inflation expectations have not broken higher the way they did in 2022. The damage is concentrated in front-end policy expectations, not a broad long-end confidence shock—yet. If long rates follow short rates higher, the pain for risk assets gets materially worse.

Dollar, Commodities & Market Dynamics

• Dollar rallies on safe-haven flows, reversing months of weakness. Bloomberg Dollar Spot Index +0.5% Friday. Bloomberg Intelligence notes an unusual pattern: large-cap tech and consumer stocks are rising alongside the dollar rather than getting hurt by it. Normally, a stronger dollar pressures companies with big overseas revenues, but investors are treating U.S. multinationals as a relative safe haven because Europe and Asia face a worse energy hit.
• Gold suffers worst week in four decades; traditional havens are failing. Gold fell 3.2% Friday to ~$4,502/oz. Bonds are losing value amid inflation, gold is falling on dollar strength, and equities are down. Money market funds have become the safe haven of choice, suggesting a sidelining rather than a structural reallocation.
• The supply shock is broadening beyond crude. Iranian attacks damaged Qatar’s Ras Laffan LNG plant (the world’s largest), with officials estimating it will take years to repair. European TTF natural gas is up 141% YTD. Fertilizer, helium, and sulfur blockages threaten industries from chipmaking to agriculture. Brent +94% YTD; gas oil +126%.
• Credit is not yet broken, but it is tightening. HY bond funds saw $3.65 billion in outflows (week ended March 18)—the largest since Liberation Day. An early signal that higher oil and tighter financial conditions are beginning to matter outside headline commodity markets.
• S&P 500 posts fourth straight weekly loss; Nasdaq nears correction. S&P 500 fell 1.5% Friday, now nearly 7% below its all-time high. Nasdaq down 2%, approaching a 10% decline from its recent peak. KBW Bank Index −9% YTD as stagflation fears hammer financials.

CRE Finance Market Implications

• The brief rate-relief window has closed again. Three weeks ago, the 10-year sat at 3.94% and markets priced two Fed cuts. Today: the 10-year is at 4.38% (+44 bps) and zero cuts priced.
• Floating-rate borrowers lose the relief they were counting on. The next Fed cut is now priced for July 2027. Borrowers who underwrote bridge and construction loans to a declining-rate glide path face at least 15–16 more months at current SOFR levels—or more if the hike scenario materializes. Refi risk intensifies for 2026–2027 maturities.
• Funding channels matter more than spot property fundamentals right now. If private credit turbulence persists while banks remain cautious, transitional assets dependent on nonbank capital will likely feel it first. Bank-capital easing is a genuine medium-term positive for CRE lending capacity, but the 90-day comment period and current macro uncertainty delay any near-term benefit.
• AI-driven office demand is a real but narrow bright spot. Manhattan’s AI leasing surge is filling mid-market space and pushing rents in previously weak submarkets—a positive for top-tier urban office. But the demand is geographically and concentrated on a sector basis, and the broader backdrop argues for caution outside AI/tech-adjacent drivers.
• Energy-cost pass-through hits the property stack from both sides. Oil above $100 raises operating costs and construction inputs simultaneously. If Brent sustains above $110–$120, development budgets will face meaningful upward revisions—particularly for energy-intensive types such as data centers and cold storage. Higher construction costs plus higher financing costs compress new-development returns from both ends.

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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Senate Election Outlook Shake Up 

March 24, 2026

As the battle for the midterms kicks into high gear the political outlooks are changing for Senate Republicans. 

Why it matters: After the 2024 results, Democrats have had a tough 2026 senate map to contend with: 

• All but two of the 22 Republican seats up for election are in states that President Trump carried by at least 10% in 2024. 
• Democrats would have to flip four seats and hold seats in Georgia and Michigan, both of which Trump won in 2016 and 2024. 
• There are four seats that have been considered toss-ups since the beginning of the cycle, they are Maine, Michigan, North Carolina, and Georgia. 
• Recent political headwinds for the Republicans have led many to believe that Democrats have a chance to compete in four more states: Texas, Alaska, Ohio, and Iowa.

Texas

• In the Lone Star state, Democrats have dubbed the current situation a “perfect storm” for them to compete in the general election this fall. 
• State Senator James Talarico prevailed over Congresswoman Jasmine Crockett (D-TX-30). Talarico was viewed as the more moderate of the two and has made his faith a centerpiece of his campaign. 
• On the GOP side, there is a messy primary going on between Sen. John Cornyn (R-TX) and Texas Attorney General Ken Paxton. The success of Talarico and infighting on the GOP sides makes this the best opportunity Democrats have had to win a Senate seat in decades.

Alaska

• Former Congresswoman Mary Peltola (D-AK) entered the race in January and immediately made the race more competitive. Peltola represented Alaska in the House of Representatives from 2022-2025, the first Democrat to do so since 1972.
• In 2024, the state voted for Trump by a margin of 13 points, while Peltola only lost her 2024 election by two points, outrunning Harris by double digits. If there is even a hint of a blue wave this fall, Peltola has a shot at winning the state.

Ohio

• Ohio is becoming a true toss-up, even in a state Trump carried by 11 points in 2024. Democratic nominee and former Senator Sherrod Brown lost by only 4 points in 2024, significantly outrunning the top of the ticket. 
• In an election cycle that is looking promising for Democrats, Brown has a great shot to take back the seat.

Iowa 

• Iowa’s open-seat race is unexpectedly competitive after Sen. Joni Ernst (R-IA) announced her retirement.
• Despite Iowa’s GOP tilt, Democrats see an opening thanks to a competitive midterm environment. Ernst won her last election by six points and President Trump won the state by 13 points.
• Democrats are deciding between Josh Turek, a two-time Paralympic gold medalist who represents the reddest state house seat held by a Democrat. The other option is progressive candidate Zach Wahls, a state Senator who is a sixth-generation Iowan who is currently serving in the state's Senate. 
• On the GOP side, Congresswoman Ashley Hinson (R-IA) is the likely nominee with a host of endorsement, including President Trump.

The bottom line: Strong candidate recruitment and macro political environment dynamics may put enough seats in play to make Democratic control of the upper chamber a possibility.

Contact James Montfort (jmontfort@crefc.org) with any questions.

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House Likely to Negotiate on Housing Bill

March 24, 2026

As we have been covering, the House of Representatives has yet to act on the Senate-passed 21st Century ROAD to Housing Act (H.R. 6644) that contains significant limitations on single-family rental (SFR) and build-to-rent (BTR). 

Why it matters: The legislation passed the Senate 89-9 and is supported by the White House, but would limit institutional investment in housing and require new BTR properties to be sold to consumers within seven years. 

What they’re saying: On Monday, Rep. Maxine Waters (D-CA), the lead Democrat on the House Financial Services Committee, officially called for a conference committee to negotiate changes to the Senate bill.

Waters’ statement echoes committee Chairman French Hill’s (R-AR) call for negotiations, as well as Speaker Mike Johnson and Majority Leader Steve Scalise. 

• In addition to the concerns impacting supply, House members also have concerns with other aspects of the Senate legislation, including a temporary ban on central bank digital currency. 
• Waters’ letter also lists Democratic priorities in the House-passed version that were not in the final Senate bill.

The big picture: CREFC and other real estate industry groups have been raising alarms with section 901 of the bill, which would impose significant federal limitations on institutional investment in offering single-family homes for rent. 

• Click here for additional background on the SFR/BTR issue. 
• Beyond the SFR issues, a drafting error in section 213 related to HUD’s Federal Housing Administration (FHA) income thresholds on multifamily housing construction would have the effect of lowering eligible income levels rather than raising levels as intended by the original legislation. 
• Senate Banking Committee Chairman Tim Scott (R-SC) and Ranking Member Elizabeth Warren (D-MA) remain opposed to any changes. Majority Leader John Thune (R-SD) acknowledged that the chambers may need to negotiate or go to a conference committee to enact the bill.

The bottom line: Bipartisan alignment with the House Financial Services Committee leadership is a positive development in the effort to amend H.R. 6644 to limit its potential negative impacts on creating more housing. 

• As Congress will be out through mid-April, negotiations on the bill will likely extend the time horizon on passing housing legislation. 
• Momentum on the effort may diminish as lawmakers draw closer to the midterm elections and confront other priorities such as government funding. 

Contact David McCarthy (dmccarthy@crefc.org) with questions.

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CRE Securitized Debt Update

March 24, 2026

Private-Label CMBS and CRE CLOs

Three transactions totaling $2.8 billion priced last week:

1. SLG 2026-OMA, a $1.65 billion SASB backed by a fixed-rate, five-year loan for SL Green and its partners, South Korea’s National Pension Service and Hines, to refinance One Madison Avenue, a 27-story office tower in the Flatiron District of Manhattan.
2. PRPM 2026-CRE1, a $615.5 million CRE CLO sponsored by Balbec Capital. The initial pool of the managed transaction comprises 12 whole loans and seven loan participations secured by 20 properties across eight states and Washington. There are 13 multifamily properties (68.4%) and seven hotels (31.6%).
3. PNW 2026-ARTE, a $525 million SASB backed by a floating-rate, three-year loan for Schnitzer West and Baupost Group to refinance an office tower in Bellevue, WA.

By the numbers: YTD 2026 private-label CMBS and CRE CLO issuance totaled $42.5 billion, down 3% from the $44.1 billion for the same period last year.

Spreads Hold Steady

• Conduit AAA and A-S spreads were unchanged at +78 and +105, respectively.
• Conduit AA and A spreads were unchanged at +145 and +205, respectively.
• Conduit BBB- spreads were unchanged at +450.
• SASB AAA spreads moved by +3 to +4 bps, depending on property type, to a range of +111 to +180.
• CRE CLO AAA and BBB- spreads were unchanged at +145/+150 (static/managed) and +350/+360 (static/managed), respectively.

Agency CMBS

• Agency issuance totaled $2.4 billion last week, comprising $1.3 billion in Freddie K, ML, and Multi-PC transactions, $781 million in Fannie DUS, and $300 million in Ginnie transactions.
• Agency issuance for YTD 2026 totaled $40.8 billion, 36% higher than the $29.9 billion recorded for the same period in 2025.

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

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CRE Finance Council President & CEO Announces Plans to Retire

March 20, 2026

The CRE Finance Council (CREFC) today announced that President and Chief Executive Officer Lisa Pendergast has informed the organization’s Board of Governors of her intention to retire on or about August 3, 2026, following a decade of her leadership.

“Under Lisa’s exceptional leadership, CREFC has strengthened its role as the commercial real estate finance industry’s central forum for dialogue, advocacy, and market intelligence,” said Leland F. Bunch III, Managing Director at Bank of America and the Chair of CREFC’s Executive Committee and Board of Governors. “The Board has launched a thoughtful and thorough search process to ensure a seamless new CEO transition to continue CREFC’s success.” 
 
Ms. Pendergast guided CREFC through a period of significant growth and industry evolution. During her tenure, the organization increased membership by more than 30 percent and firmly established itself as the leading industry voice representing the full spectrum of commercial and multifamily real estate finance participants.
 
Under Ms. Pendergast’s leadership, CREFC has enhanced its role as a trusted, nonpartisan resource for market participants, policymakers, and regulators. She has championed initiatives to improve market transparency, strengthen industry standards, and expand the organization’s research, education, and member engagement platforms, while fostering collaboration across lenders, investors, issuers, servicers, and other stakeholders. With more than 30 years of experience in commercial real estate capital markets, Ms. Pendergast is widely recognized for her deep market expertise and leadership. Prior to her CREFC role, she held senior positions at Jefferies, Royal Bank of Scotland, and Prudential Securities, and was consistently ranked as a top research analyst. She served as CREFC’s Chair in 2010–2011 and was a member of its Board of Governors for more than nine years.
 
“Leading CREFC has been one of the greatest honors of my career,” said Ms. Pendergast. “I am incredibly proud of what we have built together; a strong, collaborative organization that serves as the voice of the commercial real estate finance industry both in the markets and in Washington, D.C. I remain fully committed to CREFC and to ensuring a smooth and orderly transition.”

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CRE Finance Council Announces Planned Retirement of President and CEO Lisa Pendergast

March 19, 2026

NEW YORK, NY — March 19, 2026 —The CRE Finance Council (CREFC) today announced that President and Chief Executive Officer Lisa Pendergast has informed the organization’s Board of Governors of her intention to retire on or about August 3, 2026, following a decade of her leadership.

“Under Lisa’s exceptional leadership, CREFC has strengthened its role as the commercial real estate finance industry’s central forum for dialogue, advocacy, and market intelligence,” said Leland F. Bunch III, Managing Director at Bank of America and the Chair of CREFC’s Executive Committee and Board of Governors. “The Board has launched a thoughtful and thorough search process to ensure a seamless new CEO transition to continue CREFC’s success.”

Ms. Pendergast guided CREFC through a period of significant growth and industry evolution. During her tenure, the organization increased membership by more than 30 percent and firmly established itself as the leading industry voice representing the full spectrum of commercial and multifamily real estate finance participants.

Under Ms. Pendergast’s leadership, CREFC has enhanced its role as a trusted, nonpartisan resource for market participants, policymakers, and regulators. She has championed initiatives to improve market transparency, strengthen industry standards, and expand the organization’s research, education, and member engagement platforms, while fostering collaboration across lenders, investors, issuers, servicers, and other stakeholders. With more than 30 years of experience in commercial real estate capital markets, Ms. Pendergast is widely recognized for her deep market expertise and leadership. Prior to her CREFC role, she held senior positions at Jefferies, Royal Bank of Scotland, and Prudential Securities, and was consistently ranked as a top research analyst. She served as CREFC’s Chair in 2010–2011 and was a member of its Board of Governors for more than nine years.

“Leading CREFC has been one of the greatest honors of my career,” said Ms. Pendergast. “I am incredibly proud of what we have built together; a strong, collaborative organization that serves as the voice of the commercial real estate finance industry both in the markets and in Washington, D.C. I remain fully committed to CREFC and to ensuring a smooth and orderly transition.”   

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Bank Capital Proposals Unveiled

March 19, 2026

Today, the banking regulators issued the long-awaited bank capital proposals, with comments due 90 days after publication in the Federal Register.

CREFC and Mayer Brown will hold a webinar on March 25 at 3pm ET to cover the proposals’ key recommendations and our initial views on implications for CRE finance. Please click here to register.

The below two proposals were issued by all three agencies, the Federal Reserve Board, the Federal Deposit Insurance Corp (FDIC), and the Office of the Comptroller of the Currency (OCC):

• Proposed revisions to the risk-based capital framework applicable to the largest, most internationally active firms and to firms with significant trading activity (Basel III proposal)
  
• Proposed regulatory capital and standardized approach for risk-weighted assets (standardized approach proposal)

The G-SIB Surcharge proposal was issued by the Fed:

• Proposed risk-based capital surcharges for Global Systemically Important Bank holding companies (GSIB surcharge proposal)

The accompanying Board Memo states that the:

• Basel III proposal would revise the risk-based capital requirements that apply to the largest, most internationally active firms (Category I and II firms) and simplify the framework by subjecting firms to a single set of risk-based capital calculations;
• GSIB surcharge proposal would improve the measurement of systemic risk in the framework which determines the surcharge that applies to the largest and most complex banks; and
• Standardized approach proposal would revise the U.S. standardized approach, which applies to most banks, to better align capital requirements with the risk of traditional lending activities.

The regulators estimate the following capital impacts:

• Aggregate common equity tier 1 capital requirements of Category I and II firms would decrease by 2.4% under the proposals (a 1.4% increase due to the Basel III proposal and a 3.8% decrease due to the GSIB surcharge proposal).
• The standardized approach proposal would decrease the aggregate common equity tier 1 capital requirements of Category III and IV firms by 3.0% and of smaller banking organizations by 7.8%

Initial, high-level takeaways for CRE:

• The standardized approach proposal recommends that risk weights for non-construction commercial real estate loans decrease from 100% to 95%. Table V.4: Impact on Risk-Weighted Assets on page 129-130 provides a summary of risk-weight impacts across assets.
  • Securitization risk-weights also would decline. Additionally, the proposal reduces the minimum risk weight for senior securitization positions from 20% in the current standardized approach to 15%.
  • The threshold-based deduction of mortgage servicing assets (MSAs) has been removed. All MSAs would receive a 250% risk weight under the proposal
• The Basel III proposal goes into significant detail on the treatment of CRE, including the definition of what constitutes regulatory commercial real estate exposures and accompanying risk-weights. 
  • It allows for more granular capital treatment than the standardized approach.
  • Unfortunately, one of CREFC’s concerns related to the 2023 proposal reappears in this proposal: although common mezzanine/SPE financing structures are economically equivalent to first lien lending, they continue to get penalized under a definition that requires a direct property security interest.

These proposals are the culmination of many years’ work to implement the 2017 international Basel agreement on bank capital requirements.

• In July 2023, the banking agencies jointly issued the notice of proposed rulemaking to implement the Basel III Endgame, which would have raised core equity Tier 1 capital for large and complex banks by 16%.
  • The banking industry fiercely opposed it, and it was never finalized.
  • The proposal also had negative implications for CRE finance, particularly given the onerous capital treatment of securitizations and warehouse lending. CREFC submitted a comment letter highlighting its concerns and led a joint letter from real estate industry groups. 
• In September 2024, then Fed Vice Chair for Supervision Michael Barr announced a re-proposal attempt, but that effort stalled when President Trump took office and Barr stepped down. 

What’s next: As noted above, CREFC and Mayer Brown, who is serving as drafting counsel on our comment letter, will hold a webinar on March 25 at 3pm ET. 

Please contact Sairah Burki (sburki@crefc.org) with questions or if you want to join the CREFC Bank Capital Working Group.

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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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