Federal Reserve continues rate hikes with another 75bps installment

US central bank still expects 3.25-3.5% range by 2022’s end.

The US Federal Reserve is not tapering its interest rate hike plans heading into the back-half of 2022 after initiating its second 75-basis-point jump over a two-month span, a move that could have a continued impact on commercial real estate lending and transaction activity.

Fed chair Jerome Powell said during a July 27 conference that the central bank will continue to try and stymy inflation, with intentions of ending the year with a key rate ranging between 3.25 to 3.5 percent. With the 75bps hike, the Fed’s key rate now ranges from 2.25 to 2.5 percent.

“We’re trying to do the right amount,” Powell said. “We are not trying to have a recession and we don’t have to.” He noted doing too little on interest rate programming would leave more uncertainty in the economy and do greater pricing damage to consumers.

The fresh hike marks the Fed’s fourth increase this year and arrives after a similar 75bps uptick instituted in June. In its July 27 note, the central bank said it anticipates ongoing increases in the target range will be appropriate to continue fighting macro pressures.

For the commercial real estate debt landscape, the central bank’s rate increases have served as a slight damper on the burgeoning loan activity taking place across asset classes and most sizably in the multifamily and industrial sectors. Insurers, banks and alternative lenders steeped in the space have all noted adjustments to deal frequency with more borrowers and investors cautious on taking on any heightened risk in the changing rate environment.

Alongside the hike, the Fed also plans to continue reducing its holdings of Treasury securities, agency debt and agency mortgage-backed securities as part of its initiative to shrink its balance sheet.

“Russia’s war against Ukraine is causing tremendous human and economic hardship,” the bank said in a release, noting its attention toward inflation risks. “The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity.”

Economic outlooks in the US and beyond have been mixed to choppy because of inflation and broader headwinds hitting the globe. The International Monetary Fund, as one example, downgraded its global growth predictions in a July 26 report citing inflation and other factors as downward drivers on the current market situation across all sectors, including commercial real estate.