On Thursday, the Federal Reserve reduced the federal funds rate by 0.25 percentage points, setting the new target range at 4.5% to 4.75%. This marks the second consecutive rate cut, following a 0.5 percentage point reduction in September, as the Fed responds to moderating inflation and evolving economic conditions. (FOMC Statement, Nov. 7)

Fed’s Decision

• Policy Adjustment for Economic Stability: Fed Chair Jerome Powell noted that while inflation has eased to 2.5% as of August 2024, the labor market shows signs of softening: “This further 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 as we move toward a more neutral stance over time.” (Reuters, Nov. 7)

• Outlook for Future Cuts: The Federal Reserve's Summary of Economic Projections indicates the possibility of additional rate cuts in the coming months, with the federal funds rate projected to decrease to a range of 3.25% to 3.5% by the end of 2025. (Barron’s, Oct. 9)

Impacts on CRE

• The Fed’s rate cut arrives at a time when real estate capital markets are under considerable pressure. Industry leaders expect this move will enhance credit capacity and capital formation, support refinancing efforts, and stabilize property values.

• Credit Availability & Market Sentiment: The positive impact of a continued downward trend in the federal funds rate on CRE industry sentiment is reflected in the Roundtable’s Q4 Sentiment Index. The Q4 results showed a 9-point jump in the overall score of the Index, marking the highest score in three years, since Q4 2021. (Q4 Sentiment Index Survey)

• Implications for Property Refinancing: Decreasing financing costs could reignite projects that have been delayed due to high interest rates.The rate cut should facilitate refinancing efforts, particularly in sectors like office and multifamily, where challenges from post-pandemic occupancy shifts continue to impact valuations and cash flow.

Looking Ahead

• Chair Powell emphasized that future rate adjustments will be assessed on a meeting-by-meeting basis, allowing the Federal Reserve to respond flexibly to evolving economic conditions. Powell’s remarks suggest a cautious but adaptable stance, which CRE leaders can look to as they assess financing and investment strategies in a shifting economic landscape. (Wall Street Journal, Nov. 7)

• The Fed’s final 2024 meeting is scheduled for December 17-18. RER will continue monitoring rate adjustments, advocating for policies that support CRE stability and growth as the rate environment evolves.

• At FSU’s Real Estate TRENDS conference this week, Roundtable President & CEO Jeffrey DeBoer commented, “The Fed’s recent action to lower interest rates is a promising development for the commercial real estate industry. Reduced borrowing costs may help alleviate current pressures on project financing, foster investment, and ultimately support asset valuations as we enter a more balanced credit environment.”

DeBoer was a featured speaker at the FSU Real Estate Center’s 30^th Real Estate TRENDS conference this week, where he shared economic and political insights on the recent elections, on the Fed’s rate cuts, ongoing economic trends in CRE, and the industry’s upcoming political and regulatory landscape.