The Federal Open Market Committee has lowered interest rates for the first time since December 2024. The baseline rate is now set at 4 to 4.25 percent, lower than its previous range of 4.25 to 4.5 percent.
During the press conference on Wednesday, Federal Reserve Chair Jerome Powell said that in this softer labor market, the downside risk to employment is rising and inflation remains above the 2 percent goal for the FOMC, which passed by a vote of 11 to 1. The central bank’s projections indicate that two more rate cuts are likely before the end of the year.
This decision came as no surprise, as experts have been predicting a quarter-point reduction following the most recent August labor market report from the Bureau of Labor Statistics. That analysis showed that only 22,000 jobs were added, as Powell noted in the press conference.
Also, a revised estimate shows that the economy added 911,000 fewer jobs in 2024 and early 2025 than previously believed. That has factored into the Fed’s decision to take steps to stabilize the labor market.
At the July 30 FOMC meeting, the policy statement had hinted at the possibility of a rate cut. Experts were anticipating this shift, as CME’s FedWatch tool put the likelihood at 96 percent on Monday.
“Powell, in his speech at the Jackson Hole conference, made it clear that potential weakness in the labor market had moved to a more prominent place among his list of economic concerns.” Byline Banks Chief Investment Officer Kurt Funderburg told Commercial Property Executive.
READ ALSO: Foreign Investors Recalibrate Amid Uncertainties
What does it mean for CRE?
How will the rate cut impact CRE? “Even though the Fed has the capacity to reduce interest rates at the short end of the yield curve, the long end of the yield curve is still determined by market forces,” said Uma Moriarity, senior investment strategist at CenterSquare. “So we’re just going to see this yield curve steepening, rather than falling.”
In the short term, experts predict that the industry won’t feel much impact. The 10-year Treasury rate has more impact than a single rate cut, such as the one announced on Wednesday. Moriarity believes that while the yield curve may decline slightly, nothing yet in the data suggests a major drop.
Shlomi Ronen, principal & founder of Dekel Capital, said that a 25-basis-point cut will not be significant enough to be felt across the CRE sector. However, he suggested that in the short term, it will ease pressure on deals involving floating rate debt.
Byline’s executive vice president & head of commercial real estate and specialty finance, John Barkidija, likewise believes that the impact of this move will be minimal. “Approximately 20 basis points of the 25 basis points have already been priced into short-term interest rate benchmarks like SOFR,” he noted.
“Second, short-term rates only impact assets that rely on short-term lending like construction loans and other transitional assets, which is a relatively small subset of the CRE universe.”
0 Comments