The market is starting to break a key assumption that CRE borrowers have relied on for the past year: Fed cuts are no longer translating into lower borrowing costs.
Over the past few weeks, the curve has clearly shifted into a bear steepening regime… the front end anchored by a Fed on hold, while the long end continues to grind higher. Inflation uncertainty, energy volatility, and Treasury supply are now doing more to drive rates than policy expectations.
For borrowers, the implication is straightforward: waiting is no longer a strategy. The back end of the curve — where most CRE debt is priced — is moving independently, and in the wrong direction.
Last week’s data recap
- Payrolls: Strong headline (+178k), but weaker beneath the surface
- Unemployment: Declined to 4.3%, largely due to falling participation
- Wages: Moderated slightly
- Inflation: Still firm, with energy set to push near-term prints higher
The takeaway: inflation is still in control, not growth.
The long end is in charge now
The market is no longer trading off the Fed, it’s trading off inflation risk. The front end is pinned, but the long end is repricing higher as term premium rebuilds.
This is a fundamental shift. For most of the cycle, borrowers could wait for cuts and expect relief. That relationship has broken. You can get Fed cuts and still see higher borrowing costs.
Volatility is the real risk — not direction
Volatility has come off the extremes but remains elevated where it matters. Markets are trading in wider ranges, and moves are increasingly driven by headlines, not clean macro trends.
This is not a market you can forecast, it’s a market you have to react to. Execution windows are short, and they don’t stay open.
Energy is setting the ceiling on rates
Oil is no longer just a macro input, it’s the market driver. Prices are swinging on geopolitical headlines, and the market is being forced to price in persistent supply risk.
The key point is that oil doesn’t need to go higher to be a problem, it just needs to stay volatile. That volatility feeds directly into inflation expectations and keeps pressure on the long end of the curve.
As long as energy remains unstable, rates are biased higher, not lower.
The Fed is sidelined
The Fed is effectively stuck. Inflation is too high to cut, but growth isn’t weak enough to force their hand.
The market has already adjusted. We’ve moved from pricing a clear easing cycle to pricing no clear direction at all — a holding pattern with two-sided risk.
In this environment, the Fed is not the driver. Inflation is.
Hedging markets are breaking from “screen reality”
What’s happening in rates is now showing up directly in execution.
The cap market is severely dislocated. Pricing in the market is materially higher than what models or calculators suggest, and dispersion across dealers is wide. There is no single “market price” right now, only what you can actually execute.
The biggest mistake borrowers can make in this environment is waiting. Late-stage execution means fewer counterparties, less competition, and worse pricing.
Optionality is everything right now. If you don’t have it, you will pay for it.
What’s ahead this week
- CPI (Friday): Will determine whether inflation is re-accelerating
- PCE: Confirms underlying trend
- Jobless Claims: Tests labor resilience
Inflation is the only number that matters right now. If it comes in hot, rates move higher. If it cools, you may get temporary relief, but not a regime change.
Bottom line
We are no longer in a “wait for rates to come down” market. We are in a volatile, inflation-driven market where long-end rates can move higher regardless of Fed policy.
For borrowers, that means one thing: be prepared, be flexible, and be ready to act, because the market is not waiting for you.
Luke Fuller, Director
Luke Fuller is the Director of Capital Markets at Defease With Ease | Thirty Capital, bringing 10+ years of experience in debt structuring, interest rate risk management, and capital markets execution for CRE investors. With expertise in securitization, derivative hedging strategies, and structured finance, he focuses on optimizing debt portfolios and mitigating market risk through advanced financial modeling and analytics. Luke has extensive experience in CMBS, agency, and balance sheet lending, structuring financial instruments, and executing transactions across multiple asset classes. He has advised investors, private equity firms, and REITs on interest rate derivatives, yield curve analysis, loan restructuring, and portfolio risk assessment.
