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FIGURES I MINNEAPOLIS OFFICE 1 032022 Economic Overview The problems associated with inflation continue to run their course.Although the pace of inflation may have started to plateau,the Federal Reserve's hawkish response has been unequivocal in a way that caught markets by surprise.Aggressive rate hikes and Fed balance sheet reductions have successfully resulted in a strong dollar and higher mortgage rates,and the beginning of a slowdown in the U.S.economy. Higher rates are not just impeding household decisions;a higher corporate cost of capital is forcing firms to rethink hiring plans.So far resilient consumers have driven further economic growth but now the realities of lower savings rates and chronically poor sentiment suggest excess spending is coming to an end.Consequently,we expect the economy to contract early next year,and unemployment to rise.This should push inflation down toward 3% by year-end 2023. It is possible the Fed may be able to reduce inflation and maintain the unemployment rate below 5%, but we should not bank on that.Once inflation is tamed,both capital and real estate markets will become more predictable again IN 88. 8 CBRE RESEARCH ©2022 CBRE,INC.