Consensus building around Fed rate cuts.
The Federal Reserve is in the midst of a rate-cutting cycle, which is generally a positive for CRE. The current voting body of the FOMC is divided on timing and magnitude of further easing but is generally expected to continue cutting until they bring the Fed funds rate back to neutral.
The median projection for a neutral long-run federal funds rate among FOMC members is 3.0%, but individual estimates vary widely from 2.6-3.9%. This lack of consensus may persist in the near-term until there is more clarity around the health of the labor market and greater conviction that tariff-induced inflation will subside. We believe the data will nudge the Fed in the direction of lower interest rates so that the neutral 3.0% target is achieved by H2 2026.
Consensus Should Tighten Under New Fed Leadership
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Source: Federal Reserve
Source: Federal Reserve, Cushman & Wakefield Research
The incoming Fed chair will not be the only new face influencing monetary policy. Atlanta Fed President Raphael Bostic will retire in February, removing a hawkish voice and potentially allowing for greater consensus around lower interest rates. The outcome of a closely watched Supreme Court case between President Trump and current Fed governor Lisa Cook could also tilt the president’s scope of influence on monetary policy.
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Labor markets have cooled due to both supply and demand factors. The unemployment rate will be an important metric to watch for signs on where the Fed is heading with interest rate policy.
President Trump is due to nominate a new Federal Reserve chair to replace Jerome Powell at the end of his term in May. This nominee will likely look to build consensus within the Fed around lower interest rates.
Tariffs are contributing to what most believe will be a one-time increase in prices. Look for inflation to decelerate by mid-2026, paving the way for further easing.
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