As most everyone expected, the Federal Reserve’s Federal Open Market Committee has decided to leave interest rates where they were. The federal funds rate stayed at the 4.25%–4.50% range. Also, as rumored, two Fed governors previously appointed by President Trump, Michelle Bowman and Christopher Waller, wanted to see a quarter-point rate reduction and so voted against keeping the rate unchanged. This was the first double dissent in 30 years.
Given current conditions, finding more internal Fed questions about the best course should not be surprising.
The central bank remains caught in a difficult spot with its dual mandate” of maximum sustainable employment and stable prices, Ryan Severino, chief economist and head of U.S. research for BGO, said in written remarks. He pointed to multiple factors contributing to the complexity. Inflation “slowed considerably” since 2022, and yet, tariffs have increased the risk of “reacceleration,” at least temporarily. The labor market is slowing down. Unemployment, while effectively flat now, is 70 basis points higher than the 50-year low of 3.4% in 2023. Payroll employment growth has slowed.
Severino remains “at least slightly” more bullish than many about the prospects of reducing rates later in the year. “We see a greater downside risk to employment than prolonged resurgence in inflation,” he wrote. “However, the Fed is going to have to navigate this minefield carefully, and we will closely parse the language it chooses this week.”
One question left, with the end of Jerome Powell’s term as Fed chair — although he will remain a governor of the institution — is whether the dissent of Bowman and Waller, with Trump’s future pick of a new chair, might mean a longer-term emphasis on lower rates.
A push for lower rates from the Fed may be less important for CRE than long-term stability and predictability, HSF Kramer Managing Partner Dan Berman tells GlobeSt.com.
“It’s not that I think lower rates won’t stimulate real estate, but the more upset there is, the more people might wait in a troubled situation capital-wise or with cash on the sidelines,” Berman says. The federal funds rate doesn’t directly set CRE lending rates, but it influences other rates that do. And the steadier conditions are, the more willing conservative borrowers are to take their capital on the sidelines and invest it. Steady conditions also make foreign investors more willing to invest. The best way forward might be a small cut in September and then a series of moves telegraphed ahead of time.
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