Last week, the Federal Reserve had two opportunities to comment on the state of commercial real estate. In a regular report to Congress and minutes from the June Federal Open Market Committee, opinions on the overall economy seemed guardedly optimistic. CRE received a more cautious and negative reception, especially around implications for banking.

In the Monetary Policy Report to Congress, the high-level summary noted that inflation had reduced, though still wasn't at the 2% goal the Fed holds, and that the benchmark federal funds rate has continued for the last year in the 5.25% to 5.50% range. Rate cuts won't happen until the Fed has "greater confidence" that inflation is moving "sustainably" toward 2%. The labor market has remained strong, though added jobs per month are slowing, as is wage growth. GDP is growing moderately, with slowdowns due to volatile categories like net exports and inventory investment.

Commercial real estate comes into focus through loans and in association with credit cards and auto loans. Delinquency rates continued to increase during the first quarter of 2024, staying above long-run averages. As a result, part of banks' CRE portfolios are under stress. Some banks are too reliant on uninsured deposits. The combination is of concern given last year's closure of institutions like Silicon Valley Bank, Signature Bank, and First Republic Bank, in which a sudden fall of a significant asset source caused large depositors to rapidly transfer their money to other banks, challenging the solvency of all three. Equity prices for regional banks have declined in part because of concern over the quality of CRE loans.