Fed Holds Interest Rates in Warsh’s Second Meeting as FOMC Chair
Three FOMC board members voted no, favoring a quarter-point rate hike
By Andrew Coen July 29, 2026 2:52 pm
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The second Federal Open Market Committee (FOMC) meeting under new Federal Reserve Chair Kevin Warsh signaled another reality check of higher-for-longer interest rates to the commercial real estate industry.
In a 9-3 vote, the FOMC maintained its benchmark interest rate Wednesday at between 3.5 percent and 3.75 percent for the fifth straight meeting, citing inflation risks from ongoing war in Iran. Inflation remains well above the Fed’s 2 percent target at a time when Warsh has laid the groundwork for possibly changing its data approach when crafting monetary policy decisions.
Warsh said in a post-meeting press conference that the FOMC doesn’t have a “soft target” for inflation and remains committed to the 2 percent annual rate as a chief goal.
“We have begun a new chapter and we understand that the five-plus years of inflation above target cannot be cured in nine weeks or by a single month of modest price decreases,” Warsh said. “This Fed will not waver. Our credibility rests on performing our duties and delivering on our responsibilities.”
The vote to maintain interest rates came with some dissent as FOMC regional presidents Beth M. Hammack of Cleveland, Neel Kashkari of Minneapolis and Lorie K. Logan of Dallas voted no, preferring instead to implement a quarter-point hike.
Warsh’s second meeting leading the Fed after replacing Jerome Powell as chair in May occurred two weeks after he said during congressional testimony that the FOMC has “no tolerance for persistently elevated inflation.” Warsh also spoke to whether traditional inflation gauges such as the Consumer Price Index and the Producer Price Index (PPI) should be rethought.
The new Fed chair appointed a task force in June that will examine whether the central bank’s long-standing inflation metrics needs to change, with findings expected later in the year. The latest data released by the the U.S Bureau of Labor Statistics showed CPI at 1.5 percentage points above the Fed’s 2 percent inflation target and PPI at 3.5 percentage points over.
Warsh has appointed a task force to help answer the question he’s asking about the nature of inflation, but it won’t deliver results for months.
“The common knowledge about what defines inflation may need to be reconsidered,” said Jay Neveloff, chair of U.S. real estate at HSF Kramer. “The guidelines that we’ve been using for decades may not be the appropriate guidelines anymore, and if you think that there is always going to be a little bit of inflation there may not be a need to raise rates.”
Neveloff said expectations for higher interest rates are not slowing down deal activity, with many investors seeking opportunities with properties that need to be recapitalized or distressed assets where the borrower is in danger of handing back the keys to lenders. Neveloff noted that there remains plenty of money on the sidelines that investors are ready to deploy into real estate, especially from overseas.
The CRE industry has largely adjusted to the higher-for-longer interest rate reality in the last couple of years, said Briggs Elwell, co-founder and CEO of RLTYco, which provides financial and tax services to real estate clients. Elwell added that continued stabilization of interest rates and cap rates will lead to increased investments in the U.S. CRE space this year.
Elwell noted that a big reason CRE transactions may see an uptick in the second half of 2026 stems from more relaxed lending standards aided by updated Basel III rules released by U.S. regulators in March 2026. Those new standards reduced capital requirements for banks.
“I think you’re going to see money eager to get back into the space because lenders are less restricted and lenders are also looking at the market as more stable,” Elwell said.
Ryan Reich, chief financial officer of developer Mountain Shore Properties, said deal activity overall is very “selective in the current elevated interest rate climate,” with borrowers seeking refinances only “when absolutely necessary.”
Despite some banks looking to lend more of late, Reich said many have remained reluctant to loosen their underwriting standards for the deals Mountain Shore often seeks, which typically range in size from $25 million to $75 million.
“The environment we are in is a fraction of the aggressiveness that we saw 15 years ago,” Reich said. “As rates go higher, then they can use less leverage to make the same loan, but, at 8 to 9 percent rates, nothing works. We’re not in a world where you can do deals with a capital stack that has your primary loan in the highest single digits.”
The Fed previously hiked interest rates in 11 out of 12 FOMC meetings between March 2022 and July 2023 to between 5.25 and 5.5 percent followed by a 14-month pause. While the FOMC has cut rates a combined six times in 2024 and 2025, interest rates remain far higher than the near-zero borrowing levels that existed during the COVID-19 pandemic.
Shivan Perera, managing director at Bridge, an AI-driven direct lender for hotel owners, said the hospitality industry is just now seeing a valuation reset from the Fed’s previous aggressive hikes. Perera said transaction activity should pick up in the lodging sector as hotel cap rates adjust to higher-for-longer interest rate conditions.
“The market has finally hit an equilibrium and it has created a lot more opportunity for trading,” Perera said. “It’s easier to underwrite a deal now than it had been previously because we know that rates are somewhat stable, and we know the types of cap rates and what kind of rate environment you’re going to be going into.”
Andrew Coen can be reached at acoen@commercialobserver.com.
