The Federal Reserve cut interest rates Thursday, as many expected, but Fed Chairman Jerome Powell warned that a December cut “is not a foregone conclusion.”
The Federal Open Market Committee voted to lower the target range for the federal funds rate by 25 basis points to 3.75% to 4%, the second consecutive cut following its September meeting.
In a prepared statement at a news conference, Powell said there are several indicators pointing to a moderate pace of economic activity expansion. Gross domestic product grew by 1.6% in the first half of the year, down from 2.4% in 2024. Data available before the government shutdown suggested economic activity to be on a “somewhat firmer trajectory” than expected, specifically referring to consumer spending.
With all these factors in mind, Powell said committee members have “strongly differing” views on how they should act in December. When answering questions from reporters, he said two committee members dissented in this vote, with one voting against any cut and the other in favor of a 50-basis point cut.
“A further reduction in the policy rate at the December meeting is not a forgone conclusion — far from it,” he said in his prepared remarks. “Policy is not on a preset course.”
Hoteliers’ thoughts
Asian American Hotel Owners Association Chairman Kamalesh Patel said in a statement the rate cut is a long overdue relief for hotel owners who have been holding their breath through high borrowing costs.
“With interest rates finally easing, our members can move from survival mode to growth mode. When hoteliers thrive, local economies thrive — it’s that simple,” he said.
The rate cut is kinetic energy for growth, AAHOA President and CEO Laura Lee Blake said in an accompanying statement. Every point shaved off interest rates keeps hotel owners’ doors open, jobs secure and communities vibrant.
“Lower borrowing costs give our members the confidence to reinvest, expand and continue driving the heartbeat of America’s travel economy,” she said.
Inflation remains sticky, especially as retailers keep passing through tariff-related costs to consumers, though not as much as the Fed initially thought, said Greg Friedman, managing principal and CEO of Peachtree. The challenge for the Fed goes beyond inflation, however, as it’s operating in a data vacuum.
“With the shutdown disrupting core economic releases, policymakers are effectively flying blind, piecing together signals from regional surveys and anecdotal reports,” he said via email. “That heightens the risk of policy error at a time when the economy is already losing steam. Hiring is slowing, households are carrying record debt and fiscal stimulus has done most of the heavy lifting to keep growth afloat.”
The Fed is walking a tightrope as it tries to sustain employment without reigniting inflation without the normal visibility to make these decisions with confidence, he said.
For commercial real estate, this uncertainty reinforces a “higher for longer” reality in financing costs, even if short-term rates begin to ease, he said.
“Capital remains selective, and valuations are still adjusting to this environment,” he said. “The near-term pain of refinancing and tight credit conditions is real, but it also sets the stage for disciplined capital to step in and create value.”
The rate cut is a welcome development that signals not just policy easing by a timely window for hotel financing, said James Reivitis, chief development officer at lender Access Point Financial, in a statement.
"With spreads still highly competitive, borrowers can take advantage of this environment to refinance or acquire using flexible floating-rate structures as the market moves into a forecasted easing cycle," he said. "The forward SOFR curve, as of this morning, is projected to dip below 3% by the end of 2026, creating the potential for positive leverage to reemerge on properly capitalized assets. After two years of elevated rates and increasing margin pressure, now — not later — is the time to reassess capital stacks and position for flexibility over the next three years, especially as the broader outlook remains uncertain."
Additional Fed comments
Along with stronger consumer spending, Powell pointed to expansion of business investment in equipment and intangibles while activity in the housing sector remains weak. The shutdown in the federal government will weigh on economic activity while it continues, but that should reverse once the shutdown ends.
The unemployment rate remained relatively low through August while job gains slowed significantly since earlier in the year, he said. Much of that slowing likely reflects a decline in the growth of the labor force due to lower immigration and labor force participation, but labor demand has softened as well. While government labor data from September is delayed, the evidence available points to low hiring and layoffs.
“In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months,” he said.
While inflation has eased from its highs in mid-2022, it has stayed somewhat elevated relative to the Fed’s 2% long-run goal, Powell said. Estimates based on the CPI suggest total personal consumption expenditure prices grew 2.8% over the 12 months ending in September, even when excluding volatile food and energy categories.
“These readings are higher than earlier in the year as inflation for goods has picked up,” he said. “In contrast, disinflation appears to be continuing for services.”
Near-term expectations for inflation have increased over the course of the year due to the tariffs, but they believe the higher tariffs will have a one-time shift in the price level, he said.
“It is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed,” he said. “Our obligation is to ensure that a one-time increase in the price level does not become an ongoing inflation problem.”