The U.S. Federal Reserve held the benchmark lending rate steady as commercial property professionals join central bankers in watching for specific policies from the new Trump administration to figure out their next steps.
The Fed said on Wednesday that it will keep the rate fixed within the range of 4.25% and 4.5%, as it had signaled, in its first decision of 2025 after three reductions last year to try to control inflation. That followed nearly a dozen increases from early 2022 to mid-2023.
Federal Reserve Chair Jerome Powell explained Wednesday at a press conference that the Fed needs to see administration policies, from tariffs to immigration, before it can fully assess interest rate strategy for the broader economy. He added that, while it was not in the data yet, he has heard anecdotal reports of how construction businesses dependent on immigrant labor are saying “it’s suddenly gotten harder to get people.”
Thomas LaSalvia, Moody’s head of commercial real estate economics, told CoStar News in an email that “all eyes are now shifting away from Fed action and towards economic consequences of new administration policies." He added that "moving forward, the extremity of those policy actions will be more influential on economic health.”
Melissa Cohn, regional vice president of William Raveis Mortgage, said that "mortgage rates will move with inflation and employment data, as always, even with all the uncertainty behind President Trump's implementation of his new policies and the impact on inflation and the economy."
The Fed said the decision comes as U.S. economic activity is expanding at a solid pace and that the unemployment rate has stabilized at a low level. However, it added, the country's inflation rate remains somewhat elevated above the Fed’s target of 2%.
The central bank has indicated it would exercise caution and isn't beholden to outside appeals. Last week, Trump told the World Economic Forum, “I’ll demand that interest rates drop immediately."
Trump criticism
Two hours after the Fed's decision was announced, Trump lashed out at the bank and its chair on his social media outlet, Truth Social.
"Because Jay Powell and the Fed failed to stop the problem they created with Inflation, I will do it by unleashing American Energy production, slashing Regulation, rebalancing International Trade, and reigniting American Manufacturing, but I will do much more than stopping Inflation, I will make our Country financially, and otherwise, powerful again!" according to the post.
For his part, Powell said the public should be confident the Fed will continue to do its work as it always has, and that he had not had contact with Trump regarding the matter. He declined to comment further on the president’s remarks made before the decision.
Some in Trump’s orbit have affirmed the Fed should be separated from political influence. Treasury Secretary Scott Bessent, confirmed to his post on Monday, told lawmakers during his nomination hearing this month that he supports the Federal Reserve’s independence with respect to monetary policy. The Treasury didn't respond to a request Wednesday afternoon for further comment.
Trump appointed Powell in late 2017, and told NBC News in December he would not attempt to replace him before his term as chair ends in May 2026.
James Nelson, the New York-based head of tristate investment sales at real estate services firm Avison Young, said before the decision that the industry will be looking in the near future for any effects on capitalization rates: "I think what’s really important to pay attention to on what’s going to impact cap rates," Nelson said at the brokerage's media briefing in Washington.
Cohn and others said that as an independent body, the Fed will not just lower rates when asked.
Trump's comments trying to get the Fed to lower rates “could actually backfire in the sense that it might create the perception that the Fed is not going to be able to gain control of inflation,” Francesco Bianchi, the economics department chair at Johns Hopkins University, said in a phone interview. “Trump, by requesting to cut the federal funds rate, effectively is thinking, ‘Well that’s going to bring down mortgage rates,’” Bianchi said, but added that it’s much more complicated than that. “The best way to lower mortgage rates in the medium run is to actually gain control of inflation.”
The Fed move comes as the Bank of Canada cut its benchmark interest rate by 25 basis points to 3% on Wednesday, following five interest rate cuts Canada's central bank made last year. The Bank of England is set to decide next week whether to raise its rates after two cuts last year.
Moira Ritter contributed to this story.