Inflation is back on the rise and top economic forecasters think it could hit between 5% and 6% by the fall.
The warnings come in the context of growing economic pressures. They include rising 10-year Treasury yields, spiking oil prices and consumer costs, growing debt, higher uncertainty and concern by some Fed officials that interest rates might rise in the near future.
Bank of America's BofA Global Research chief investment strategist, Michael Hartnett, who in March said that economic conditions reminded him of the 2007–2008 run-up to the global financial crisis, highlighted that year-over-year producer prices are near 6% while CPI is nearing 4%, as Seeking Alpha reported.
The somewhat good news from the BofA analysis is that annual CPI could fall to 3%, moving back again toward the Fed's 2% target, if monthly increases average just 0.1%. However, inflation could rise to 5.2% if the most recent 0.4% monthly rise continues through the November midterm elections.
The other forecast comes from the Federal Reserve Bank of Philadelphia's Survey of Professional Forecasters. It sees lower real GDP growth in 2026, coming in at to 2.3%, from 2.5%. That's combined with the unemployment rate increasing from 4.4% to 4.5% in the first quarter of 2027 and, more importantly, for headline inflation to average 6%, up from 2.7% in its last quarter's survey.
The forecasters thought that core inflation would rise from the previous estimate of 2.8% to 3.2%, the difference being core inflation's lack of inclusion of energy and food. They also thought that, measured on a fourth-quarter to fourth-quarter basis, headline and core CPI inflation in 2026 would average 3.5% and 2.9%, respectively.
As Seeking Alpha noted, a 4% CPI threshold has been historically associated with equity market declines. The problem for CRE is that higher expected inflation rates tend to drive up Treasury yields as investors look for higher returns as an offset.
The Philadelphia Fed's survey also pointed to a risk of a contraction in real GDP in the second half of this year. It was down to a 17.9% chanced compared with the previous estimate of 20.98%, but it also increased probability estimates for contraction in the following three quarters: 2026 Q3 (from 21.9% to 25.1%), 2026 Q4 (22.7% to 24.5%) and 2027 Q1 (23.6% to 25.7%).
Estimates depend heavily on domestic political, geopolitical and economic conditions, with the war in Iran being the largest unknown at the moment. As Reuters reported, three months after the U.S. and Israel's first attack on Iran, there is now a deadlock with neither side giving in on peace negotiations, increasing the risk of growing military conflict and the continued closure of the Strait of Hormuz.
Considering that no end is in sight and if consumers continue to feel pressure, this could affect the balance of power in Congress, the direction of policies and legislation, leading to the impact of CRE.
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