The Federal Reserve paused interest rates hikes on Wednesday but left the door open for future increases as it assesses its progress in combating inflation.

While the Fed decided to leave things unchanged for the time being, Federal Reserve Chairman Jerome Powell said the committee that votes on these matters largely believes at this point that more rate hikes will be “appropriate” before the end of the year to get inflation to its goal point.

“The process of getting inflation back down to 2% has a long way to go,” Powell said in a press conference Wednesday.  

In a statement Wednesday, the Federal Reserve indicated that a pass at this time “allows the Committee to assess additional information and its implications for monetary policy,” a statement from the Fed said. 

“The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain,” the statement said.

Interest rates are at their highest since 2007 and have been on the rise since the first rate hike in March 2022. Prior to this month, the Fed had raised interest rates 10 times in a little over a year.

A Labor Department report on Tuesday found that overall the pace of inflation is cooling but once food and fuel prices were stripped out, figures indicated that inflation is still rapid, The New York Times reported. 

The increase in interest rates slammed the brakes on the deal volume in commercial real estate since the hikes began last year. High interest rates, which slashed the value of older mortgages on the books at a number of banks, were also blamed for a string of bank failures that began this year. 

The Fed holds its benchmark rate steady for the first time in over a year following 10 consecutive increases, but signals its intention to implement two more hikes in '23 to lift the funds rate to 5.5-5.75%. Officials also raised their core inflation/growth forecasts for year-end pic.twitter.com/xLZGgzTEvt

— Colby Smith (@colbyLsmith) June 14, 2023

The impact of this temporary reprieve from interest rate raises is not likely to be significant on the commercial real estate sector, which is feeling the impacts of these hikes deeply. 

“Some time will still need to pass before confidence returns to the marketplace for transactions to resume in earnest and the bid-ask spread narrows — perhaps by end of third or fourth quarter 2023,” Jahn Brodwin, senior managing director of the real estate solutions practice at FTI Consulting told Commercial Property Executive.

Specifically asked about commercial real estate, Powell acknowledged that there’s a “substantial” amount of CRE loans throughout the banking system, though he said a large part of it is in smaller banks.

“To the extent it's well distributed, the system could take losses,” Powell said. “We do expect that there'll be losses, but there'll be banks that have concentrations [of CRE] and those banks will experience larger losses.”

He noted that the Fed is monitoring the situation closely.

“It feels like something that will be around for some time, as opposed to something that will suddenly hit and work its way into systemic risk” Powell said.

UPDATE, JUNE 14, 3:53 P.M. ET: Comments from Fed Chair Jerome Powell have been added.