Fed Holds Rates at 3.75%–4%, but 'Inflation Is Too High'

The Federal Open Market Committee held the federal funds rate at 3.75% to 4% on Wednesday, despite two dissenters voting to raise it by 0.25 percentage points. The decision followed the committee's two-day October meeting and came after a 25-basis-point hike in September.

For the apartment industry, the pause was expected — and welcome. "Expectations are clearly for the Fed to stand pat, which helps," Jeff Brown, CEO and co-founder at T2 Capital Management, told Multifamily Dive in emailed comments ahead of the announcement.

What does the pause change for apartment deals?

In the near term, not much. Tyler Chesser, co-founder and managing partner of CF Capital, said cap rates (the yield used to value income properties) have moved out since September, but sellers haven't accepted it.

"Historically it takes a few quarters for seller expectations to catch up to the market," Chesser said. "Until they do, the bid-ask gap means a lot of deals stall, get retraded, or die. I'd expect volume to stay thin through year-end, especially if the Fed signals a December hike."

Smita Garg, principal of investments and asset management at SKG Capital, framed the problem in numbers: financing costs cap what buyers can pay while still hitting target returns, while seller expectations lag. "Higher borrowing costs continue to make multifamily transactions more difficult to execute," Garg said in emailed comments. "That disconnect continues to limit transaction volume."

Warsh's tone matters more than the decision

Federal Reserve Chair Kevin Warsh used his press conference to deliver a mixed verdict. "Real activity is clearly pointing in the right direction," Warsh said. "That's good news. But inflation is too high."

He announced a change to the Fed's 2028 schedule: it will still meet eight times, but only six meetings will set policy. He also said financial and credit conditions have tightened for some businesses and households since September's hike.

"Market participants are becoming somewhat more discerning in their capital allocations, and while overall financial conditions are tighter, I'm unwilling and unable to call them tight," Warsh said.

The Fed's statement said economic activity is expanding at a strong pace and domestic spending has been resilient, despite geopolitical uncertainty. Warsh flagged energy prices as a lingering risk. "Energy and related prices have moved higher again in recent weeks, and our job is to ensure that relative price changes in some sectors do not broaden out across the economy," he said.

He wants more data before any further hike, noting rising oil futures. "Ensuring price stability … quashing inflation, is not about some fixed individual date on a calendar," Warsh said.

For apartment observers, tone outranked the vote itself. "After September's hike, the market is trying to read whether another one comes in December, and Chair Warsh's tone will move the 10-year Treasury more than the decision itself," Chesser said. "That matters for us because most apartment debt is priced off Treasuries, not the Fed funds rate."

Higher-for-longer is the working assumption

Several firms are underwriting deals as if rates stay elevated. "I don't know that we're going to see material drops in rates over the near term," said Greg Cavanaugh, senior vice president of development for the mid-Atlantic region at Bainbridge.

Garg said the real question is the direction of rates over the next six to 12 months, and that "greater visibility around the rate path would help bring more certainty back to underwriting and ultimately help buyers and sellers close the gap on pricing."

Chris Nebenzahl, CBRE's Americas head of multifamily research, put a date on that clarity. "Greater clarity around the rate outlook should materialize in early 2027, helping bring buyers and sellers back together, improving price discovery and supporting higher transaction volume as investors gain confidence in the market," he said in emailed comments. Until then, expect thin volume and a wide bid-ask gap.