The Fed Cut Rates — Here's Why It Matters
On September 17, 2025, the Federal Open Market Committee (FOMC) made a pivotal move: a 25 basis point rate cut, bringing the federal funds target range to 4.00%–4.25%.
But the real story isn’t just the rate cut — it’s the shift in tone and what it signals for commercial real estate.
Key Changes to the FOMC Statement
1. Employment Risks Took Center Stage
The unemployment rate has "edged up", and for the first time this cycle, the Fed is openly deprioritizing inflation and refocusing on labor market health.
Translation for CRE: The Fed is more likely to cut again, which could relieve debt pressure — especially for owners facing refis or bridge loan maturities.
2. The First Rate Cut Since the Hiking Cycle Began
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Fed funds rate lowered to 4.00%–4.25%
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Reflects rising concern about softening labor conditions
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Signals that the “higher for longer” stance is now being walked back
This isn’t just a one-off cut — it’s the start of a potential easing cycle.
3. Dovish Dot Plot Revisions for 2025–2026
The updated dot plot shows a clear change in forward guidance:
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2025 median projection: Revised down to 4.1%
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2026 median projection: Plunged from 3.9% to 3.1%
- This suggests a full pivot: The Fed is signaling that multiple cuts are likely ahead — even if inflation stays slightly above target.
What It Means for CRE: Good News, With Caveats
The commercial real estate market — especially segments like office, multifamily, and development land — is highly sensitive to financing costs.
The Positives:
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Refinancing costs may drop as rate cuts ripple into short-term debt markets
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Bridge and construction financing could become more accessible
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Cap rates may compress slightly as the cost of capital falls
But there's a big “if” looming.
The 10-Year Yield Problem: Fed Cuts Aren’t Enough
Even with the Fed cutting rates, CRE borrowing costs may not fall quickly. Why?
Because long-term rates, like the 10-year Treasury yield, are still elevated — and driven by federal deficit pressures.
Here’s the challenge:
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The U.S. government is running massive deficits
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To finance them, the Treasury issues more bonds
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This flood of supply keeps long-term yields elevated
Lower Fed rates help, but unless deficit spending is brought under control, the 10-year yield may stay stubbornly high, keeping long-term CRE debt expensive.
The Path Forward for CRE Investors
Rate cuts are only step one in easing the pressure on the debt markets.
CRE stakeholders should:
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Track the 10-year yield closely — it matters more for long-term deals than Fed funds
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Underwrite deals using multiple interest rate scenarios
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Be cautious of premature optimism: rates are falling, but spreads and long-term benchmarks remain sticky
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Look for shorter-term repositioning opportunities where lower rates can support bridge-to-perm transitions
Bottom Line
The Fed’s September 2025 rate cut is a clear pivot, and it’s good news for commercial real estate — but the road to meaningful debt relief is still bumpy.
If fiscal discipline doesn’t improve, the long end of the yield curve may stay elevated, slowing the flow-through effect of rate cuts.
That said, we’re moving in the right direction — and the CRE capital markets are starting to reflect that cautious optimism.
FAQ
Q: Will this rate cut reduce my CRE loan costs immediately?
A: Not directly. The impact depends on your loan structure. Floating-rate debt tied to SOFR may benefit sooner. Fixed-rate loans tied to long-term benchmarks like the 10-year Treasury will need more sustained rate compression.
Q: Is this the start of a full easing cycle?
A: Based on the Fed’s dot plot, yes — markets are now pricing multiple cuts through 2026, barring a major inflation shock.
