Fed Lowers Rates for 3rd Time in ‘25
This cut could actually make a big difference for multifamily investors.
In its final meeting of the year, the Federal Open Markets Committee has once again lowered interest rates by 25 basis points. The baseline rate now is 3.5 percent to 3.75 percent—back to where it was in September 2022.
According to the Fed, the vote wasn’t unanimous, with one member of the committee wanting a half-point cut and two members coming out against lowering rates at all.
Clouds of uncertainty
Dissenters on both ends of the spectrum had cause to disagree. Inflation is still higher than the Fed’s target of 2 percent, sitting at 2.8 as of September, according to data from the Bureau of Economic Analysis at the U.S. Department of Commerce. That same month, the Consumer Price Index was at an annualized 3 percent. More recent data is still not available because of the recently resolved federal government shutdown, though the next report will be later in December.
Even so, the Fed said in a statement that “more recent indicators are consistent with these developments,” and that “inflation has moved up since earlier in the year, (remaining) somewhat elevated.”
Fresh government data on employment isn’t available yet either, with the unemployment rate having come in at 4.4 percent in September. Other metrics point to broader economic uncertainty. Private sector employment was down 32,000 jobs in November, according to data from payroll company ADP, after a gain of 47,000 October and a drop of 32,000 in September.
READ ALSO: 2025 Employment Update
Median projections released by the Fed along with the rate announcement predict that U.S. real GDP growth will total 1.7 percent in 2025 and rise to 2.3 percent in 2026. The unemployment rate next year is forecast to remain almost where it is likely to be at the moment at 4.4 percent. Inflation is forecast to cool down to 2.4 percent in 2026.
The chair’s views
During the post-meeting press conference, Federal Reserve Chairman Jerome Powell noted that since September of last year, interest rates have been reduced by 175 basis points, positioning them near their. “(They’re near) a neutral value, and we are well positioned to wait to see how the economy evolves,” Powell said.
Regarding the Fed’s forecast of higher GDP growth next year, Powell said consumer spending has held up, and that spending on data and AI has been bolstering business investment.
The chairman also said that a rate hike on the heels of a number of cuts—which has happened in the history of interest rate movements—isn’t likely. Either standing pat or a few more cuts is far more so.
“A rate hike isn’t anybody’s base case at this point,” he said. “We’re at the right place to just wait. Some people feel that we should cut once or more this year and next year, but when people are writing down their estimates of policy (about) where it should go, it is either holding here or cutting a little or more than a little.”
Regarding the residential real estate market, Powell noted that a cut in interest rates isn’t a longer-term solution to the problem of housing affordability.
“We haven’t built enough housing in the country for a long time, and a lot of estimates suggest that we just need more housing of different kinds,” Powell said. “We can raise and lower interest rates, but we (the Fed) doesn’t really have the tools to address a secular housing shortage, a structural housing shortage.”
Will multifamily benefit from lower rates?
This third cut of the year is the most significant for multifamily real estate investors, according to Marion Jones, principal & executive managing director of U.S. Capital Markets at Avison Young.
In Jones’ mind, the signaling of the rate cut is more significant than the amount by which rates actually fell. “In an era of prolonged volatility, it signals directional conviction,” Jones told Multi-Housing News. “Second, it creates additional liquidity in the system, not just for problematic (refinancing) or exit strategies but for new developments and buoyed tenant demand-side fundamentals.”
As the real estate market moves into 2026, the cut sets the stage for more capital deployment, kickstarting development pipelines and leasing activity that reflects renewed confidence in growth, Jones said.
