Industry Leaders Say Fed Rate Reductions Likely

The question of the Federal Reserve’s near-term monetary policy is back in the news again following Fed Chair Jerome Powell’s speech Friday at the central bank’s annual symposium in Jackson Hole, WY. Without making a clear-cut promise of initiating another round of reductions to the federal funds rate at the next meeting of the Federal Open Market Committee, Powell nonetheless opened the door for such action. As part of our 2025 Leadership Series focusing on the industry outlook, Connect CRE asked key commercial real estate figures about the prospect of more rate-cutting. Below, you’ll read insights from Tony Chereso, president and CEO of The Inland Real Estate Companies, LLC; and Annemarie DiCola, CEO of Trepp.

Given the evolving expectations around the Federal Reserve interest rate policy in 2025, do you foresee increasing pressure on the Fed to implement rate reductions? What magnitude of impact could these potential rate cuts have on CRE borrowing costs and overall transaction volume?  

Tony Chereso: There’s already growing pressure building on the Fed to cut rates in 2025, and that pressure is likely to intensify over the coming months. Economic growth has cooled, inflation is sticky, but no longer rising, and the labor market is beginning to show some signs of cracks. Even if just a total of 75 [basis points] were cut in 2025, that would still be relevant enough to lead to noticeably lower rates on CRE loans, especially the floating rate kind. Cap rates might not compress, but lower rates would make refinancing more doable for owners stuck with expensive legacy debt.

Annemarie DiCola: With the Fed’s recent decision to hold rates steady while signaling that cuts remain on the table for later this year, market sentiment has shifted toward the possibility of more accommodative policy in the second half of 2025.

As our teams have discussed on The TreppWire Podcast, for CRE investors, lower rates would offer some relief on borrowing costs; however, the impact will vary sharply by sector and deal profile.

In many cases, a 50-75 bps cut alone will not be enough to bridge the underwriting gap if debt service coverage ratios (DSCRs) remain below lender thresholds or credit spreads stay elevated. The most immediate beneficiaries would likely be multifamily and industrial properties with stable income streams, where small reductions in financing costs can turn borderline deals into viable ones. In contrast, sectors facing structural headwinds,  like office, are less likely to see meaningful transaction momentum from rate cuts alone without broader improvements in fundamentals or lender risk appetite.

Still, even modest easing can help improve liquidity and sentiment at the margin, encouraging buyers and sellers to re-engage in healthier segments of the market. As we’ve seen historically, this shift in tone can be just as important as the rate move itself in driving transaction activity.