Fed Holds Rates And Cuts Forecasts, Leaving CRE In 'A Kind Of Purgatory'

Federal Reserve officials held the central bank’s benchmark rate flat Wednesday. 

It was the fourth consecutive meeting where Fed officials opted to maintain the 4.25% to 4.5% range for the federal funds rate. The unanimous decision was nearly universally expected, according to CME Group’s FedWatch sentiment tracker, but comes as geopolitical tensions reach a fever pitch and inflation ticks upward.

The impact of tariffs on inflation remains a key sticking point under contention among Fed officials, but Chairman Jerome Powell conceded that increased prices were on the horizon.

“There's the manufacturer, the exporter, the importer, the retailer and the consumer, and each one of those is going to be trying not to be the one to to pay for the tariff,” Powell told reporters during a press conference Wednesday. “But they will all pay together — or maybe one party will pay it all, but that process is very hard to predict.”

Fed board members and Federal Reserve Bank presidents shifted their forecasts for inflation upward as part of financial projections released after the meeting. The personal consumption expenditures index is now projected to reach 3% in 2025, up 30 basis points from the prior forecasts released in March. 

Board members also took a markedly more negative view of economic growth, revising down their forecast change in real GDP by a median 30 basis points to 1.4%.

The median projection for the federal funds rate at the end of the year remains unchanged at 3.9%, which signals expectations among Fed officials for at least one rate cut this year. 

Investors expected today’s decision, and major stock indexes and bond markets were mostly flat. 

“The Fed’s decision to hold rates steady is no surprise, and frankly, it’s unlikely to move the needle on real estate deals or financing,” Forman Capital partner Ben Jacobson said in an email. “The market remains in a kind of purgatory, and it will take more than a modest rate cut to shake things loose. Until there’s clearer economic direction, investors and developers will remain cautious.”

Powell said tariffs had begun to trickle down into consumer prices and were helping to push inflation higher. 

“Everyone that I know is forecasting a meaningful increase in inflation in the coming months from tariffs, because someone has to pay for the tariffs,” Powell said. The impacts were likely to become pronounced throughout the summer, but the economy remains in solid shape and the overall size of the inflationary impacts remains uncertain.

Despite the gloomier outlooks for 2025, which Powell said were reflective of sinking consumer sentiment, Fed officials expect inflation will moderate in 2026. 

“Beyond the next year or so, however, most measures of longer term expectations remain consistent with our 2% inflation goal,” Powell said.

The Fed’s preferred measure of inflation, the personal consumption expenditures price index, was at 2.1% in April, with May data set to be released on June 27. 

“One of our jobs is to make sure that a one-time increase in inflation doesn't turn into an inflation problem,” he said.

Inflation and jobs metrics for May came in better than forecast, a welcome sign for Fed officials, but President Donald Trump’s fitful trade war has dragged on and escalating tit-for-tat attacks between Israel and Iran threaten to drag the United States into the conflict, further eroding already tenuous geopolitical stability.

Powell avoided discussing how the Fed's strategy would pivot as a result of increased tensions across the Middle East and the potential for direct U.S. involvement in military strikes.

The Fed, charged with controlling inflation while promoting maximum employment, has long had a 2% target for inflation. Fed officials stressed earlier this year that they had not abandoned that goal despite the challenging macroeconomic environment, and Powell reiterated the target Wednesday. 

The decision to keep rates flat means access to — and the cost of — capital will remain a massive hurdle for investors across the commercial real estate landscape, Avison Young Managing Director of U.S. Capital Markets Marion Jones said in a statement.

A September analysis from JLL estimated that more than $2T in CRE debt is set to mature by the end of 2025.

“While the Fed’s decision to hold rates steady comes as no surprise, it will be met with chagrin by battle-worn real estate investors who continue to try to invest in our housing and commercial sectors despite prolonged volatility,” she said.

UPDATE JUNE 18, 3:35 P.M. ET: This story has been updated with comments from Federal Reserve Chair Jerome Powell at a press conference following the decision.