The Fed Holds — Yet Borrowing Costs Chart Their Own Course

As widely expected, the Federal Reserve held rates steady this week. Yet the tone of the FOMC statement was clear: uncertainty remains elevated, and the balance of risks includes both stubborn inflation and potential increases in unemployment. This puts the Fed, and by extension, lenders and borrowers in a challenging position.

While headline rates stayed flat, credit markets remain in flux. Spreads, which are just as important as benchmark rates, continue to adjust as lenders grapple with macroeconomic crosswinds: trade disruptions, inflationary pressures, and political risk heading into 2026. We’ve observed this firsthand across life company platforms, where spreads briefly widened earlier this spring but have since begun to compress slightly, though volatility persists. Banks, agencies, and CMBS lenders are all recalibrating how they price risk.

Current market sentiment is akin to smelling smoke without seeing fire. The numbers suggest calm, but instinct tells us something is amiss. Volatility is elevated. Cross currents in policy, trade, and capital markets are sending mixed signals. Lenders and investors alike are proceeding with caution and so should borrowers.

The Fed is a Bellwether, Not a Lifeline

Regardless, the Fed is not coming to save the real estate industry. They may lower the target rate, and a few benchmark indexes will follow, but the Fed rate does not directly affect Treasury yields and is entirely disconnected from credit spreads — the two factors that actually dictate borrowing costs. As we saw in April, when the stock market slipped, Treasuries initially rallied but then widened sharply. Rates were thrown all over the place, yet not due to any direct action by the Fed.

Market forces are not a simple lever to pull, nor a zero-sum game. Everything is connected and often moves in its own manner, discernible only after the dust settles. Borrowers waiting for a Fed-driven reprieve in borrowing costs could find themselves disappointed, or worse, caught off guard.

The market’s current state can best be described as cautiously fluid. There’s capital available for well-structured deals backed by strong sponsors, but underwriting is deliberate, and flexibility comes at a premium. We are not in a uniformly tight spread environment anymore, nor should anyone expect a return to that dynamic in the near term.

Play Offense — with a Strong Defense

My broader view: The market remains fundamentally confused, and the cost of waiting for “perfect clarity” may be higher than the cost of taking risk off the table when and where you can. None of us control the direction of inflation, Treasury volatility, or global trade policy. But we can control how and when we lock in financing, structure deals, and avoid being caught flat-footed if conditions shift.

If you have a maturity coming up in late 2025 or 2026, this is a window worth evaluating. We’re actively underwriting refinance scenarios to help borrowers assess risk and structure around today’s environment—before the next wave of volatility sets in.