Fed Raises Rates, Lifting Borrowing Costs
Businesses that borrow to finance growth, including commercial real estate, should plan for costs that stay elevated.
Updated on Nov. 3, 2026 in Inflation
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The Federal Reserve raised its benchmark interest rate a quarter point on Sept. 16, lifting it to between 3.75 percent and 4 percent. It was the Fed's first short-term rate increase since July 2023, and it affects borrowing costs across the U.S. economy, including commercial real estate lending.
Why it matters
The Fed cited inflation levels that remain well above its 2 percent target, and stubborn inflation, compounded by a war with Iran, ended lenders' hopes of lower interest rates. For operators, higher benchmark rates raise the cost of credit and push lenders toward more selective, defensive lending.
The 0.25 percentage point increase moved the benchmark to 3.75% to 4%, against the Fed's 2% inflation target. The 10-Year Treasury yield crossed 5% on Sept. 14 and reached its highest level since 2007 on Sept. 15, while the federal funds rate is projected near 4.1% through 2027.
The players
Federal Reserve
The U.S. central bank whose benchmark rate sets the baseline for borrowing costs across the economy, including loans to businesses.
Kevin Warsh
The new Fed Chair, who now leads the central bank's rate decisions amid elevated inflation.
The details
The Fed moves its benchmark rate to influence the cost of short-term borrowing throughout the economy. Higher benchmark rates tend to raise yields on Treasuries and the loans priced against them. Lenders are responding by running more scenario analyses to test deals across a wider range of rate and valuation outcomes. For businesses that rely on borrowed capital, that means financing costs and approval standards can shift even before the next rate decision.
Timeline
Sept. 14: 10-Year Treasury yield crossed the 5% threshold.
Sept. 15: 10-Year Treasury yield hit its highest level since 2007.
Sept. 16: Fed raised its benchmark rate a quarter point.
Oct. 28: Fed governors paused rate changes at the FOMC meeting.
End of 2026: The Fed's dot plot signals one more rate hike.
Market Landscape
The September 2026 increase is the Fed's first short-term rate hike since July 2023, marking a return to tightening after that earlier cycle. Lenders are now adjusting their strategies, including in commercial real estate, to account for borrowing costs that remain elevated.
Operators should expect financing costs to stay elevated, with lenders applying more selective standards to new deals. Businesses with variable-rate debt or upcoming refinancing should model cash flow under a higher-rate scenario.
The takeaway
Higher benchmark rates are likely to persist, so financing plans should assume costs stay elevated. Track the Fed's next rate decisions and Treasury yields as leading signals for future borrowing costs.
What happens next
The Fed's dot plot signals one more rate hike by the end of 2026, and the federal funds rate is projected to remain around 4.1% through 2027.
Further reading
For background on how price pressures are shaping monetary policy, see the Inflation coverage.
Source note: This article includes information reported by Commercial Observer.
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