For the first time in more than three years, the Federal Open Market Committee raised interest rates, following its two-day September meeting on Wednesday.

In a unanimous vote, the FOMC raised the target range for the federal funds rate by 25 basis points to 3.75% to 4%. 

“This summer's inflation readings do not tell me that underlying trends have meaningfully improved,” Kevin Warsh, chair of the Federal Reserve, said in a press conference following the announcement.

Despite persistent concern about inflation and the rate hike, multifamily executives thought the near-term impact on the market would be limited, as they kept their focus on Treasury rates.

The Fed decision

After multiple rate cuts in 2025, the Fed has held rates steady this year. However, as widely expected, the central bank hiked the federal funds rate amid inflation concerns.

“We cannot affect any individual price, whether it be oil prices, whether it be foodstuffs at the grocery store,” Warsh said. “But what we can do, we will do, is ensure that any change in relative prices doesn't broaden out, and doesn't have second- and third-order effects in the economy.”

Economic activity is “expanding at a solid pace,” and domestic spending has been resilient, according to the Fed. However, uncertainty remains elevated, partially due to geopolitical developments. 

“Productivity growth is strong, and capital investment is robust,” the Fed said in the statement. “Job gains have kept pace with the workforce, and the unemployment rate has changed little.”

In the median economic projections submitted by Federal Reserve Board members and Federal Reserve Bank presidents, real gross domestic product growth is projected to be 2.3% this year and 2.4% in 2027. Personal consumption expenditures inflation is projected to be 3.7% this year before dropping to 2.3% next year, while the unemployment rate holds steady at 4.1%.

Warsh said the median participant judged that the appropriate federal funds rate would be “4.1% at the end of this year and to remain there next year.”

Limited multifamily impact

Regarding the last 10 FOMC meetings, Investors Management Group Director of Business Development Kevin Crook said in emailed comments that, “there's no reliable pattern between a raise, cut, or a hold and where the 10-year Treasury goes afterward.” 

Eastham Capital Founder and Managing Partner Matt Rosenthal said he doesn’t see a huge impact on the market. “I don't think there will be any immediate or sudden repercussions, but the raise will just add to and keep the current malaise slogging along,” Rosenthal said in emailed comments to Multifamily Dive.

Permanent rates had “more or less already been baked in” the Fed’s decision, according to Justin Ashcraft, president of Northern Ridge Capital. “Bridge debt is going to feel a real squeeze, so recently finished construction projects and value-add acquisitions will get uncomfortable on their floating rates,” Ashcraft said in emailed comments to Multifamily Dive.

Otto Ozen, executive vice president, The Mogharebi Group, also noted that longer-term Treasury yields drive multifamily pricing, along with the cost and availability of debt. “If rates continue to move higher, we would expect upward pressure on cap rates, more conservative underwriting, and continued friction in transaction volume,” Ozen said in emailed comments. “Ultimately, a sustained higher-rate environment will weigh on values and slow transaction velocity.”

Crook said that IMG’s focus is right-sizing the debt in its portfolio, which is based on the 10-year Treasury yield. “When it rises, refinancing gets harder as loan proceeds shrink and debt costs more,” he said. “So we watch the meeting, but we meet the market where it’s at.” 

While the Fed’s rate was met with shrugs from the industry, Rosenthal did see one silver lining. “The only bright spot is that long rates may settle down a bit, which would be good, but I don't think we'll see anything significant until oil comes back down,” Rosenthal said.

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