The U.S. Federal Reserve is keeping its benchmark lending rate the same, once again rejecting political demands to lower borrowing costs while predicting it would make at least two quarter-percentage point cuts before the year is over.
The Fed announced on Wednesday it held the rate at a target range of 4.25% and 4.5%, as expected by real estate industry insiders, noting in its statement that “uncertainty about the economic outlook has diminished but remains elevated.”
Uncertainty regarding trade policies and economic conditions led to the U.S. central bank’s decision, according to commercial real estate and financial professionals. The Fed has not changed its rate since December, when it lowered it by a quarter-percentage point.
“With about $1 trillion in commercial real estate debt set to roll over this year, market participants, who have been anxious to see financing and operational costs ease, are likely to be disappointed for a few more months — and possibly longer should policy uncertainty remain elevated and [if] the Fed continues to stay put," CoStar Group's chief U.S. economist, Christine Cooper, said in an email.
She said it was no surprise the committee again voted to keep rates unchanged, given uncertainty over tariffs, the massive tax bill still working its way through Congress and immigration policies, all of which have the potential to boost inflation. The Fed’s decision also came as no surprise to Marion Jones, principal and executive managing director of U.S. capital markets at real estate services group Avison Young.
The move, she told CoStar News via email, “will be met with chagrin by battle-worn real estate investors who continue to try to invest in our housing and commercial sectors despite prolonged volatility, economic uncertainty and a chaotic geopolitical climate.”
Fed still anticipates at least two cuts this year
Federal Reserve Chair Jerome Powell said at a press conference after the decision that the continued wait-and-see approach is appropriate.
“Changes to trade, immigration, fiscal and regulatory policies continue to evolve, and their effects on the economy remain uncertain. The effects of tariffs will depend, among other things, on their ultimate level,” Powell said. “Increases in tariffs this year are likely to push up prices and weigh on economic activity.”
The central bank released its latest dot plot on Wednesday that forecast how many rate cuts it would make before the end of the year, with a majority of Fed officials estimating by the end of 2025 it would trim borrowing costs at least twice by a quarter-percentage point. It’s a slightly tighter margin than in March, when a majority also projected the Fed would lower borrowing costs by a quarter-percentage point at least twice before the end of the year.
“People can look at the same data and they can evaluate the risks differently,” Powell said at the press conference. The Fed is scheduled to consider whether to make a change to the rate again this year in July, September, October and December.
President Donald Trump and other politicians have routinely criticized the Fed and Powell for not reducing the rate, even after, at the president's invitation, Powell met with him in May to discuss economic developments.
“A reduction in rates would have helped facilitate necessary but stalled transactions from looming refi’s in the multifamily sector to the funding of new leases in the office sector. The current uncertainty is bigger than any potential trade deal with China,” Avison Young’s Jones said in the email.
“The Fed’s statement indicates that uncertainty and risks — while still present — haven’t increased further,” Greg McBride, an analyst with financial information group Bankrate, told CoStar News in an email. “Judging by the Fed’s own individual projections, don’t expect interest rates to come down very quickly,” he added.
CoStar News has reported that the European Central Bank, the Bank of Canada and the Bank of England have all lowered rates this year.
Resiliency emphasized despite tariffs
Tariff increases on U.S. steel and aluminum imports have gone into effect in recent weeks.
A midyear report published this month from commercial real estate services group Cushman & Wakefield said demand conditions for most types of properties and most markets would remain resilient in spite of such taxes on imported goods. While it said the path ahead for the Fed is more complicated, it predicts clarity should arise heading toward the last quarter of the year.
JPMorgan Chase analysts said in a commentary this week that the probability of a recession occurring this year is below 40%, down from 60% in April. But they noted the Trump administration’s trade policy moves could increase inflation and complicate the interest rate outlook, steering the economy toward a decline.
"I think multifamily housing is absolutely where you want to be as an investor," JPMorgan Chase's Al Brooks said in that commentary. “The multifamily rental market may still feel the impact of a recession, but to a lesser degree than other asset classes.”
Judy Guarino, a managing director of commercial mortgage lending at JPMorgan Chase, said in a separate commentary this month on industrial real estate trends that “higher interest rates and construction costs are slowing speculative development.” She noted, however, that despite volatility, industrial real estate is not falling out of favor.