On Wednesday, the Federal Reserve reduced interest rates by half a percentage point, marking the
first rate cut in four years. The target rate now stands at 4.75-5%, with important implications for the commercial real estate industry and broader economy. (Federal Reserve Press Release | Washington Post, Sept. 18)

Fed’s Decision           

• Fed Chair Jerome Powell emphasized that while inflation is easing, falling below 3% from a peak of 9.1% in June 2022, the labor market needs support to prevent further weakening.

• At a news conference after the meeting, Chair Powell said, “This recalibration of our policy stance will help maintain the strength of the economy and the labor market, and will continue to enable further progress on inflation.” (WSJ, Sept. 18)

• The Summary of Economic Projections (SEP) report released this week forecasts an additional half-point rate cut by December, signaling two more quarter-point reductions in 2024.  (Axios, Sept. 18)

• Fed officials project the target rate will decrease to 3.4% by the end of 2025, indicating four quarter-point cuts over the next year.    

Impacts on CRE    

• The rate cut comes at a time when the real estate capital markets landscape remains challenging. However, this move could improve credit capacity and capital availability and help stabilize asset values.

• Prior to the rate cut, The Roundtable’s Q3 2024 Sentiment Index revealed that a majority of respondents expected improvements in the availability of both equity capital (71%) and debt capital (60%) within the next year.

• Meanwhile, 88% of respondents expressed optimism that asset values will either increase (57%) or remain stable (31%) over the same period. Stay tuned for The Roundtable’s Q4 Sentiment Index, which will provide further insights into how the rate adjustment is impacting real estate markets.

Looking Ahead

• Chair Powell added that decisions regarding further rate adjustments will be data-driven and made on a meeting-to-meeting basis.

• Roundtable President & CEO Jeffrey DeBoer commented on the impact for commercial real estate: "The Fed’s rate cuts will bring much-needed relief to the industry. Lower borrowing costs could help address the wave of maturing commercial real estate loans, reignite stalled projects and encourage new investments, helping stabilize property values as we move into a more favorable lending environment."

• A mix of lower rates and corporate decisions like Amazon’s office return could help stabilize the office sector still grappling with the post-pandemic shift toward remote work. (Business Insider, Sept. 18)

• This environment also presents multifamily investors with opportunities to refinance properties, reduce payments, improve cash flow, and capitalize on lower borrowing costs, while exploring new asset classes as valuations stabilize. (JPMorgan, Sept. 19)

The Fed has two more opportunities to adjust interest rates in 2024, with meetings scheduled for November 6-7 and December 17-18.