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Markets Expect Fed to Pause Before Raising Rates Again
Article originally posted on Globe St on Oct 27 2026
A Federal Reserve pause this week may give commercial real estate borrowers a reprieve, but investors counting on stable financing costs could be disappointed. Markets expect the Fed to leave rates unchanged Wednesday, then raise them by December as persistent inflation puts pressure on policymakers to act.
That leaves owners and developers facing a familiar risk: short-term borrowing costs could rise even as projects and refinancing plans move forward. Construction and bridge loans are most directly exposed to changes in the Fed’s benchmark rate. Longer-term financing depends more heavily on the 10-year Treasury yield, meaning a pause alone would not guarantee relief across the lending market.
Markets Expect a Pause, Then Higher Rates
CME Group’s FedWatch tool puts the probability of an October hold at 89.5%, leaving the federal funds rate between 3.75% and 4.00%. Beyond this week, however, expectations shift toward tightening.
For December, the tool shows a 73.1% probability of a quarter-point increase in the range of 4.00%–4.25% and an 8.3% chance of a half-point increase from the current range.
By the January 27, 2027, meeting, the probabilities spread across several outcomes: a 53.1% chance of rates at 4.00%–4.25%, a 32.1% chance of a half-point increase from the current range and a 3.1% chance of a three-quarter-point increase.
Fed Signals Favor Holding Steady
Fed Chair Kevin Warsh helped reinforce expectations for an October pause during remarks at an IMF summit earlier this month. His assessment suggested that developments since the previous meeting had not substantially changed policymakers’ outlook.
“We came to a judgment — what are we seeing in the global economy as it affects the US?” Warsh said. “I’m going to say, broadly, over the month or so that’s transpired since then, the world has broadly conformed with our expectations.”
Goldman Sachs economists read those remarks, alongside comments from other policymakers, as a signal that the Federal Open Market Committee would hold its benchmark rate steady on October 28.
That messaging carries some irony. Since taking office, Warsh has argued that the central bank should provide less advance communication to shape market expectations. Yet those expectations now help explain why an immediate increase appears unlikely, even as inflation strengthens the case for one.
“If they had wanted to hike in October, there needs to be more stage management than what they’ve done,” Robert Kaplan, a former Dallas Fed president and now vice chairman at Goldman Sachs, told The Wall Street Journal. “The way it’s set up right now, the path of least resistance is to do nothing.”
Inflation Keeps Pressure On Policymakers
The economic data offers less reassurance than the Fed’s signaling. September readings for consumer and producer prices kept inflation higher than hoped and showed no clear trend toward the central bank’s 2% goal.
Tariffs, energy prices tied to the Iran war and the AI building boom have helped sustain that pressure. Persistent inflation has complicated the rate outlook since early 2025, as the Journal noted.
Some economists argue the latest readings support acting now rather than waiting.
“If you just used risk management and you looked at the data, they want to be hiking this week,” former Fed Economist Claudia Sahm said.
Policymakers remain divided over whether rates need to rise. They also face the question of how effective another increase would be against inflation driven by constrained oil supplies and administration-imposed tariffs.
That leaves the Fed weighing both the need to contain inflation and the limits of interest rates as a response to some of its drivers.
CRE Faces Two Different Rate Risks
For commercial real estate, the consequences depend in part on the financing involved. Construction and bridge loans have the clearest exposure to changes in short-term rates, making potential increases in December or January particularly relevant for borrowers using those structures.
Longer-term financing follows a different benchmark. The 10-year Treasury yield has slipped below 5% amid concerns about AI equities and U.S. government deficit spending. Its movements matter more directly to longer-term borrowing costs than the federal funds rate alone.
An October hold would therefore offer narrow relief: no immediate increase in the Fed’s benchmark, but no assurance that short-term rates have peaked or that longer-term financing will become cheaper. For investors assessing acquisitions, development budgets and refinancing plans, the rate outlook extends well beyond Wednesday’s decision.