Fed holds at 3.75%–4% with two dissents

The Federal Reserve held its benchmark rate at 3.75% to 4% on Oct. 28 in a 10-2 vote, six weeks after raising short-term borrowing costs for the first time since 2023.

Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack dissented, both favoring a quarter-point increase. The Labor Department reported on Oct. 14 that consumer prices rose 3.7% in September from a year earlier, up from 3.4% in August, leaving inflation above the Fed's 2% target.

A sponsor pricing a bridge or construction loan this week gets no relief on the coupon. Floating-rate debt still indexes off the 3.75% to 4% range set by September's quarter-point increase, as Private Wealth Daily previously reported. The next FOMC meeting is in December, and the market is bracing for another increase before the end of the year, Commercial Observer reported. For a loan maturing in 2027, that puts the rate risk on the upside.

Sixteen of the 18 committee members indicated at the September meeting that they would support one more increase this year, based on the central bank's updated dot plot. Chair Kevin Warsh said at a post-meeting press conference that employment conditions are "quite positive" while inflation has run above the committee's objective "for close to six years." "It's our responsibility to get inflation down," he said.

Ian Ross, founder and managing principal at SomeraRoad, said uncertainty about where rates settle in late 2026 and into 2027 has slowed investment sales volume. "We're late enough in the year and conditions are uncertain enough that most people just put their pencils down," he said.

Ross said many of the deals still moving this fall involve sellers who need to unload assets, opening opportunities for "bargain hunters" given how few participants remain in the market. He said SomeraRoad and other sponsors that don't need liquidity are waiting to sell.

Jay Neveloff, partner and chair of U.S. real estate at HSF Kramer, said he has not seen deal activity slow over the past two months and that lender clients are still looking to deploy capital. He said the commercial mortgage-backed securities market has been more negatively affected by elevated interest rates.