The Federal Open Market Committee has reduced interest rates for the first time since December 2024. The basic line rate is now set at 4 to 4.25 percent, lower than the previous reach of 4.25 to 4.5 percent.
During the press conference on Wednesday, Federal Reserve chairman Jerome Powell said that in this softer labor market the downward risk for employment increases and inflation remains above the 2 percent goal for the FOMC, which is assumed with a vote of 11 to 1. The projections of the central bank are at the end of the end of the year.
This decision was no surprise, because experts predicted a quarter-point reduction after 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.
A revised estimate also shows that the economy added 911,000 fewer jobs in 2024 and early 2025 than previously believed. This has announced in the decision of the FED to take steps to stabilize the labor market.
During the FOMC meeting of 30 July, the policy statement had suggested the possibility of a rate reduction. Experts anticipated this shift, such as CME’s Fedwatch Tool has set the chance of Monday at 96 percent.
“In his speech on the Jackson Hole Conference, Powell made it clear that the potential weakness on the labor market had moved to a more prominent place under his list of economic care.” Byline Banks Chief Investment Officer Kurt Fundburg told Director of Commercial Real Estate.
Also read: Foreign investors calibrate again in the midst of uncertainties
What does it mean?
How will the rate reduction influence CRE? “Although the FED has the capacity to lower interest rates at the short end of the interest curve, the long end of the interest curve is still determined by market forces,” said Uma Moriarity, senior investment strategist at Cenntersquare. “So we’ll just see this yield curve instead of falling.”
In the short term, experts predict that industry will not have much impact. The 10-year-old Treasury rate has more impact than a single interest rate, as announced on Wednesday. Moriarity believes that although the yield curve can fall slightly, nothing in the data suggests a large decrease.
Shlomi Ronen, director and founder of Dekel Capital, said that a 25-basic point section will not be significant enough to be felt in the CRE sector. However, he suggested that in the short term it will relieve pressure on deals with debts of a floating rate.
Byline’s Executive Vice President & Head of Commercial Real Estate and Specialty Finance, John Barkidija, also believes that the impact of this step will be minimal. “About 20 basic points of the 25 basic points are already priced in short -term interest rate benchmarks such as SOFR,” he noticed.
“Secondly, short-term percentages only influence assets that depend on short-term loans such as building loans and other transitional assets, a relatively small subset of the CRE universe.”
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