Fed Pauses Interest Rates Again as CRE Awaits New FOMC Chair

Federal Reserve Chairman Jerome Powell’s last scheduled meeting leading the Federal Open Market Committee (FOMC) ended with a third straight interest rate hold and signs of growing dissent among the board. The widely anticipated move two weeks before Powell’s second term as chair ends May 15 and two months after the onset of war in Iran produced another reality check of sustained elevating borrowing costs confronting commercial real estate.

The Fed, in an 8-4 vote, maintained its benchmark interest rate at between 3.5 percent and 3.75 percent while noting elevated inflation trends related to the Middle East conflict. The four no votes marked the highest level of dissent on the FOMC since October 1992. 

“Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook, and we will remain attentive to risks to both sides of our dual mandate,” Powell said in a post-meeting press conference. “Near-term measures of inflation expectations have risen this year, likely because of substantial rise in oil prices.” 

Powell, who was nominated as Fed chair by President Donald Trump in late 2017, is eligible to remain on the board a Fed governor until January 2028. The Fed chair said during Wednesday’s press conference he will continue to serve as governor when his chair term ends “for a period of time to be determined” and keep a “low profile” pending the finality of a federal investigation into Powell connected to renovations to the central bank’s Washington D.C., offices. 

The Fed’s interest rate pause was announced hours after the Senate Banking Committee advanced the nomination of Kevin Warsh, Trump’s pick to replace Powell as Fed chair, in a 13-11 vote that split along party lines. Warsh, a former Fed governor, had stressed a commitment to maintain Fed independence from White House influence in his first confirmation hearings held April 21. 

Last Friday, a path was cleared for Warsh’s confirmation when the Department of Justice dropped its criminal probe into Powell and referred the matter to the Fed’s internal Inspector General.  U.S. Sen. Thom Tillis, a North Carolina Republican and  Banking Committee member, had previously vowed to block Warsh’s nomination until the investigation into Powell ended. 

Powell said Wednesday part of the reason he was staying on as Fed governor was recent attacks on the institution from the White House that threaten its future independence of crafting monetary policies without political influence. 

“I’m not looking to be a high profile dissident or anything like that,” Powell said. “ I’m more looking at the other aspects of this and wanting to see that things have calmed down and returning to a traditional model of working with the people that you have and bring them to consensus and respecting that consensus.”

Fed governor Stephen Miran of New York, who joined the Fed board in September 2025, was one of the four no votes and argued for a quarter-point reduction in the benchmark rate. The other three dissenting members were Neel Kashkari of Minneapolis, Beth Hammack of Cleveland and Lorie Logan of Dallas, who agreed with the pause but did not support an inclusion of  “easing bias’ in the statement at this time” that indicates future cuts. 

Wednesday’s Fed decision came on the heels of the CRE Finance Council (CREFC) releasing its first-quarter Board of Governors Sentiment Index survey, which measures the Fed governors’ confidence in the overall state of CRE finance markets. The survey showed a 20.2 percent drop in the first quarter, from 125.1 down to 100.1. Only 7 percent of those polled indicated that Fed policy would have a positive impact on CRE finance, with 61 percent saying the war in Iran would keep borrowing costs elevated. 

“What the war did was put off any rate relief hope in the near term,” said Raj Aidasani, CREFC’s head of research. “It’s not like the markets are frozen. It is just now a little bit harder to get these deals done.”

Aidasani noted that while concerns about macroeconomic conditions drove some negative sentiments, 41 percent of respondents said they expect improving CRE fundamentals over the next 12 months, with 71 percent projecting higher borrower demand for financing. 

Jay Neveloff, chair of U.S. real estate at law firm HSF Kramer, said deal activity remains very active despite some of the uncertainty emanating from the Middle East.

“It’s not moving the needle,” Neveloff said. “Iran causes higher fuel prices, and that increases the cost of construction and it probably delays new deals, but the construction deals that are already in progress are not slowing down.” 

Interest rates remaining elevated this year will only add to the increasing level of distress, with loans issued during the near-zero borrowing levels that existed before 2022, according to Mark Silverman, a partner at Troutman Pepper Locke who leads the law firm’s commercial mortgage-backed securities practice.

Silverman said loan defaults are up “significantly” this year, with continued distress in the office sector along with increasing signs of trouble for multifamily and industrial as well. He said that while higher long-term interest rates make it harder for refinancing deals to pencil, lower property values on some of these assets could be the bigger headwind. 

“Whether interest rates go down a point or even a point and a half, or if it goes up a point and a half, I’m not sure that that’s what’s upending these deals,” Silverman said. “Ultimately, if you’ve got fundamental issues at a property, I’m not sure the interest rate alone is going to solve it.” 

Andrew Coen can be reached at acoen@commercialobserver.com.