THE FED’S POSITION – HEADS THEY WIN, TAILS THEY LOOSE

Today’s post is written by Michael Green, Senior Commercial Loan Originator with Counsel Mortgage Group, LLC.  Mike writes monthly on the commercial mortgage market.  Check back each month for his commentary.  

The commercial real estate sector is facing what Trepp* has described as a “critical inflection point” as a growing percent of loans reach maturity without being paid off or refinanced. While much of the lending data in the industry remains private, commercial mortgage-backed securities provide a public window into the extent of the challenge.  The study found that 34% of the loans in the sample failed to pay off at or before their scheduled maturity date.

*Trepp is a leading provider of information, analytics, and technology to the commercial real estate (CRE) and commercial mortgage-backed securities (CMBS) markets.

Find more at Trepp | Trusted Provider of CRE, CMBS, CLO Data & Analytics

Meanwhile, the Producer Price Index (PPI) for final demand rose 0.9% in July, seasonally adjusted, the U.S. Bureau of Labor Statistics reported last month. (The PPI is a precursor to CPI, the well-known headline inflation gauge.) This marked a sharp acceleration from no change in June and a 0.4% rise in May. On a year-over-year basis, PPI advanced 3.3% – the largest annual gain since February 2025’s 3.4% and well above both consensus expectations of 2.5% and June’s 2.4%.  Many economists comment that we haven’t begun to feel the effects of tariffs yet.

With the Fed continuing to balance on the razor blade, they meet again in 2 weeks to contemplate their choices regarding interest rates … they have 3:  raise them, lower them, or stand pat … no change.  The various public investment markets have largely priced in a ¼ point drop, all variables considered, including the political intrigue.  If correct, the market reaction to watch is the bond market.  If the vigilantes aren’t buying it, like they didn’t last December, the market will sell off raising rates – a counter move to what they would normally do if they followed along with the Fed.   

In this scenario, many rates that affect the consumer, e.g., credit cards and GSE loans, will follow the Fed.  Important to note:  many/most CRE lenders price from market movements, e.g., the 10-year Treasury.  Market rate volatility should be expected to increase pending the next Fed meeting the end of October.

Equal attention should be paid to the bond market if the Fed doesn’t lower the fed funds rate.  Markets hate surprises!!

Where does this find you?  If you’re under your own sword of Damocles and like some discussion, or counseling, regarding your CRE financing dilemma, give us a call.  Remember, we work for you, not the lender.