The U.S. Federal Reserve is keeping its benchmark lending rate unchanged as it monitors how escalating trade wars impact the economy and inflation.
The Fed said Wednesday it will maintain the rate at a target range of 4.25% and 4.5% as it holds out for a clearer picture of what's ahead.
“Uncertainty around the economic outlook has increased,” the Fed said in a statement.
Commercial real estate professionals said they worry that U.S. trade wars with China, Canada, Mexico and other countries could raise prices for construction materials and other goods and services.
Marc Selvitelli, president and CEO of the commercial real estate development association NAIOP, said in an email that his group’s members highlighted that unpredictability caused by inflation, tariffs and other economic challenges is slowing new investments and reducing the pace of overall activity.
“Developers, owners and investors are increasingly concerned that rising costs — particularly for materials and labor — are putting pressure on both current and future projects,” he said.
Federal Reserve Chair Jerome Powell said at a Wednesday press conference that it can be difficult to parse exactly what the impact changes in trade, immigration and fiscal policy will bring.
“It is going to be very difficult to have a precise assessment of how much of inflation is coming from tariffs," he said.
CoStar Group Chief U.S. Economist Christine Cooper noted that some Fed policymakers have raised the possibility of the economy falling into a period of stagflation when inflation is high while economic growth is stagnant or slow, which can be difficult to address.
"The administration inherited an economy that was the envy of the world, with the term 'exceptionalism' roundly applied," Cooper said in an email. "The speed with which the outlook has weakened, and risks have emerged has surprised us all."
In all, the Federal Reserve sees economic conditions weakening this year and next as its projections this week worsened from its December estimates. It forecasted inflation to rise this year, growth to slow and the labor market to soften. Despite that, Fed members maintained their projected policy path, expecting 50 basis points of cuts this year and in 2026.
“The Fed’s decision to hold rates steady came as no surprise,” Marion Jones, real estate firm Avison Young’s executive managing director of U.S. capital markets, told CoStar News via email. “While most investors are continuing to underwrite a soft landing from a macro standpoint, we all have our eyes trained on the potential inflationary impact of heightened tariffs, especially as it relates to the cost and availability of building materials."