Fed Balances Inflation and Labor Market Data, Cuts 25 Bps
What It Means
Fed Balances Inflation and Labor Market Data, Cuts 25 Bps
September’s PPI and CPI readings came in below and at expectations (respectively), giving the Fed confidence to resume easing with a 25 bps benchmark rate cut to 4.00%–4.25% at its September 17 meeting. This follows a series of cuts throughout 2024, particularly leading up to the election, which lowered rates to 4.25%–4.50%. Labor data reinforced the need for support:
- BLS revised payrolls down by 911,000 jobs (April 2024–March 2025).
- The August jobs report showed just 22,000 new jobs, with unemployment at 4.3%.
- The weekly jobless claims last week came in at 263k vs 235k expected
Market expectations, reflected in CME Fed futures, point to 25 bps cuts at the remaining 2025 meetings: 91% probability for October 29, and 87% for December 10. If realized, the Fed’s benchmark rate could fall to 3.50–3.75% by year-end, a full 50 bps below today’s level.
What It Means for CRE
This easing trajectory provides a strong tailwind for commercial real estate. Borrowers with floating-rate debt or upcoming maturities can expect lower financing costs, as refinancing pipelines open up. Spreads may tighten as lenders compete for deals, improving debt stacks and underwriting confidence.
Valuations are likely to stabilize, with potential cap rate compression in high-demand, low-vacancy markets. Transaction activity should accelerate, as buyers and sellers align around the improved financing environment.
Q4 Projection
If the Fed follows through with the projected cuts, Q4 could be a breakout quarter for CRE, particularly for assets with locked-in demand such as industrial distribution hubs, and select office or retail properties with committed tenants. Lower rates may unlock more aggressive acquisition activity, increase refinancings, and provide a boost to valuations. Investors are likely to favor assets with predictable cash flows, as the monetary tailwind improves overall deal economics.
Conclusion
The September cut is a resumption of easing, setting the stage for continued monetary support. With further cuts likely, Q4 2025 may mark the start of stronger transaction activity, more favorable financing, and stabilizing or compressing cap rates. Is it possible that we are heading into an environment similar to the release of demand we saw in early 2021? Only time will tell.
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