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Most Economists Expect the Fed to Raise Rates This Week

Article originally posted on Globe St. on September 15, 2026

Commercial real estate executives heading into the Federal Reserve’s September meeting face a familiar but unwelcome complication: the prospect that interest rates will move higher before the industry has fully adjusted to the current cost of capital.

A quarter-point increase now appears likely, after a sharp reversal in economists’ forecasts when new inflation data showed price pressures remained firmer than many expected.

The immediate effect of a higher federal funds rate would be most visible for borrowers with floating-rate debt, including construction loans, bridge financing and some transitional-property loans. But the more consequential issue for property owners, lenders and investors may be what the decision says about the direction of rates through early next year and whether the Fed can keep long-term Treasury yields from rising further.

In a Reuters survey conducted after Friday’s inflation report, 86 of 101 economists or 85%, expected the Fed to lift its benchmark rate by 25 basis points to a range of 3.75% to 4.00% at its Sept. 15-16 meeting. Just a week earlier, more than two-thirds of surveyed economists had expected policymakers to hold rates steady.

Rate futures have moved in the same direction, implying close to a 90% probability of an increase this week. Markets are also pricing in several additional increases by mid-2027, while a narrow majority of forecasters surveyed by Reuters expects at least one more hike by the end of March.

Inflation Changes The Calculation

The shift reflects more than a change in market sentiment. Recent consumer price data showed core inflation accelerated in August, while components of producer-price data that feed into the Fed’s preferred Personal Consumption Expenditures measure also pointed to renewed pressure. Core PCE inflation was already running at nearly twice the Fed’s 2% target, according to Reuters.

Higher oil and diesel prices have further complicated the outlook. Crude oil futures have climbed above $100 a barrel, while diesel prices reached record levels amid the continuing Middle East conflict. Such increases can flow through the economy in multiple ways, raising transportation, construction, operating and consumer costs.

For commercial real estate, those pressures could show up in property operating expenses, construction budgets and tenant decisions. Logistics users, retailers and service businesses may face higher distribution and delivery costs, while multifamily and office owners could see higher utility and maintenance expenses.

A higher-rate environment also makes it more difficult for owners to offset those costs through refinancing or acquisition financing.

The inflation report also made it harder for Fed Chair Kevin Warsh to avoid action after his August remarks at the Jackson Hole conference. Warsh said then that inflation data did not show sufficient improvement in underlying trends and warned that policymakers had work to do if that did not change.

Stephen Juneau, senior U.S. economist at Bank of America, said the economic data did not give the Fed a reason to stand down.

“Warsh kind of boxed himself into where the data needed to be very soft for the Fed not to follow through with a hike,” Juneau told Reuters. “We just didn’t get that…then we got this inflation report and it was firmer.”

Treasury Yields Matter More

For commercial real estate, the Fed’s overnight policy rate is only one part of the financing equation. Long-term Treasury yields typically play a larger role in pricing fixed-rate commercial mortgages and in investors’ required returns for property acquisitions.

The 10-year Treasury yield has remained near 5%, despite a $6 billion Treasury buyback announced by Treasury Secretary Scott Bessent. That level has become especially important for a real estate industry already contending with fewer transactions, difficult refinancing math and wide gaps between buyer and seller expectations.

A Fed rate hike could raise short-term borrowing costs. Yet, some economists argue that an increase may be necessary to prevent a worse outcome for borrowers. A sharp rise in long-term yields driven by investors who conclude the central bank is not sufficiently committed to controlling inflation.

Scott Anderson, chief U.S. economist at BMO Capital Markets, said the Fed’s credibility is at stake.

“The Fed’s inflation-fighting credentials are on the line here,” he told Reuters. “They have to back up their hawkish rhetoric with some real action at the upcoming meeting, or they do risk a much steeper Treasury yield curve.”

That distinction matters for commercial property markets. A modest increase in the federal funds rate could raise the cost of short-term debt, but a steepening yield curve or a sustained move higher in the 10-year Treasury could put broader pressure on permanent financing, capitalization rates and asset values.

The Outlook Beyond September

The expected increase would be the Fed’s first since July 2023. It would also represent a notable reversal from March, when the central bank projected one rate cut for this year.

The next question is whether policymakers view a September move as limited insurance against inflation or the start of a longer tightening cycle. Matthew Luzzetti, chief U.S. economist at Deutsche Bank, told the Associated Press that it is unusual for the Fed to raise rates only once because a single increase generally has little effect on the economy.

Diane Swonk, chief economist at KPMG, also cautioned that a quarter-point increase may not be the end of the story.

“A quarter point may be the opening move, not the final one,” she told Reuters. “The only durable path to lower borrowing costs is to contain inflation.”

CRE Plans Face A New Test

For property owners, the meeting is unlikely to resolve the industry’s central financing challenge. Even if a rate hike helps reinforce Fed credibility and contain longer-term yields, that benefit may take time to emerge.

In the near term, borrowers with looming maturities will still face elevated debt-service costs, while development sponsors will continue to test projects against higher construction and financing assumptions.

The Fed also has limited ability to address the energy-driven portion of inflation. Its decisions cannot lower oil prices or end geopolitical conflict and excessive tightening could slow an economy already exposed to uncertainty around artificial intelligence investment and broader business spending.

Still, the alternative carries its own risk. If inflation expectations become entrenched and bond investors demand still-higher yields, commercial real estate could confront a more difficult and longer-lasting reset in capital costs.

This week’s likely quarter-point move, therefore, may matter less as an isolated policy decision than as an early signal of how determined the Fed is to prevent that outcome.

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