“We don’t need to be in a hurry to cut”. Those were the words from J Powell yesterday in a conversation hosted at the San Francisco Fed. He talked about the strength of the economy and how rate cuts timing will be tricky in terms of controlling inflation and not hurting the economy unnecessarily with prolonged high rates. However, Commercial Real Estate is a growing crack in the economic wall. As you can see in the chart below, delinquent loans within CLOs are growing, but also those that are in banks balance sheets. These loans have become very expensive at a time where the buildings their backing, are empty due to remote working. Pressure is building for the Fed, wether they admit it or not, to cut rates soon, before these cracks force them to act more aggressively.
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