Good morning —

For nine months the only question about the Fed was when do they cut again. As of Friday morning, the market says the next move is up, and it says so with roughly 90% confidence.

Here's the week, and what I'd do about it before Wednesday.

Two inflation prints landed back to back.

Thursday, the August Producer Price Index came in at +0.4% for the month and 5.4% year-over-year. Goods prices advanced 1.1%, and over three-quarters of that was energy.

Friday, the August Consumer Price Index came in at +0.4% monthly and 3.4% annually — both in line with consensus. But core CPI rose 0.3% for the month, a tenth above expectations. That tenth was enough. Following the release, the probability of a hike at next week's meeting jumped to around 90%, from roughly 70% beforehand.

The bond market moved with it. Per the Fed's H.15 release, the 10-year closed Thursday at 4.95%, up from 4.78% the prior Friday. The 2-year — the maturity that tracks Fed expectations most closely — went from 4.37% to 4.56% in the same stretch. That's pricing, not debating.

Illustrative only. Not a rate quote.

Your next fixed-rate loan starts with a base rate — for most strip center paper, the 10-year Treasury, today 4.95%. Your lender adds a spread for risk, typically 175 to 225 basis points on a stabilized neighborhood center. That puts your loan rate between roughly 6.70% and 7.20%.

Two weeks ago that same math landed at 6.54%–7.04%. Sixteen basis points of additional cost appeared in about five business days, with zero change to your property, your rent roll, or your tenants.

On a $3M center at 65% leverage — a $1.95M loan — sixteen basis points is roughly $3,120 a year. That alone doesn't break a deal. The direction is the point, and the direction has been one way since late August.

The floating side is different. Prime sits at 6.75%, where it's been since December 2025. If the Fed raises a quarter point, prime goes to 7.00% the day they act — not next quarter. Line of credit, bridge loan, construction facility tied to prime: that's an immediate change to your debt service. For larger bank paper indexed to SOFR, the mechanic is the same but it hits at your next reset date instead.

And watch SBA 7(a). Most 7(a) variable pricing is quoted off prime plus a spread, so a prime increase lowers the ceiling on what an owner-user can pay — thinning that bid pool at exactly the moment fixed-rate buyers are recalculating too.

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Here's what the headline buries: this was not a demand-driven inflation month.

Gasoline rose 3.9% in August and accounted for over a third of the entire monthly all-items increase. On the producer side, diesel fuel jumped 24.1% in a single month — more than a third of the goods increase traced to it. Jet fuel, gasoline, and truck freight moved with it.

Meanwhile core CPI eased to 2.4% year-over-year, its lowest since March 2021. Shelter cooled to 3.0%.

So the inflation that spooked the bond market is in the fuel tank, not the shopping cart. That distinction runs through your rent roll two very different ways. Demand-driven inflation means your tenants' customers buy less — that threatens occupancy. Freight-driven cost inflation means your tenants' margins compress while sales hold — that threatens renewal terms and TI negotiations. Different problem, different playbook.

The Texas piece: crude moved back above $100 for the first time since July. Per AAA Texas, the statewide average is $3.83 against a national average of $4.27 — a 44-cent discount. Houston is cheapest in the state at $3.69. Normally pump prices ease this time of year as summer travel fades; this year they're climbing into fall.

Forty-four cents a gallon on a household filling two 15-gallon tanks a week is roughly $680 a year that stays in a Texas consumer's pocket and doesn't stay in a California or Northeast consumer's. For your QSR drive-thru, your nail salon, your dollar store, that's real discretionary capacity your peers in other markets don't have — and it's a defensible line item when an out-of-state buyer underwrites your center on national consumer assumptions.

Two tenant-health readings, same direction.

Tuesday, NFIB's August small business survey showed optimism down 1.1 points to 98.7 — still slightly above the 52-year average of 98.0, so not a collapse. But underneath: a net -9% of owners reported higher nominal sales over the prior three months, down five points from July and the weakest since November 2025. The Uncertainty Index sits at 89 against a historical average of 68. One relief — labor costs as the top problem fell to its lowest since March 2021, so your inline tenants are getting a wage break while their top line softens.

Friday, Kroger reported identical sales ex-fuel of +0.2% against +3.4% a year ago, and cut full-year guidance to 0.2%–0.8% from 1%–2%. Two caveats: a cyclospora outbreak late in the quarter cost roughly 35 basis points as shoppers avoided fresh produce, and a pharmacy reimbursement change knocked off about 140 more. Strip those out and the underlying number is better than the headline. But the guidance cut is the company's own read on the second half. Worth noting: operating profit rose more than 12% on cost discipline. Profit is holding better than sales — the shape we keep seeing across value and necessity retail this quarter.

Grocery-anchor comps near zero and small business sales at a ten-month low don't mean your tenants are in trouble. They mean the tailwind that carried renewals through 2025 is gone. Price your next renewal conversation for a tenant whose sales are flat rather than growing, start it 90 days earlier than usual, and you'll keep occupancy instead of negotiating against a vacancy.

Ask about the lock. Call your lender on any deal in process and find out what a rate lock costs and how long it holds. Every quote you're getting is written off a ten-year near 5%.

Inventory your floating exposure. Every dollar indexed to prime reprices the day the Fed acts. Know that number before Wednesday, not after.

Pull your 2027–2028 rollover schedule. If you've been waiting for a better rate environment to refinance, this week is the reminder that waiting is a position, not a plan.

The consumer isn't the problem right now. The cost of money is. Those are two different things, and the owners who keep them separate will make better decisions over the next 90 days than the ones who don't.

If you own a center in San Antonio, Austin, or the Rio Grande Valley and want to know what this does to your specific basis, reply to this email or call me.