Lowered projections for cuts in 2025 a cause for concern

By Bryan Wroten
Hotel News Now
December 19, 2024 | 7:16 AM

The Federal Reserve’s decision to cut the federal funds rate a further 25 basis points will lower the cost of capital. But even when combined with the two previous cuts from this year, hotel industry experts don’t expect much relief.

“A lot of people were expecting interest rates to come down, which they are, but these are not trends being translated into the rates that you have to pay for hotel financing,” said Alan Reay, president of hotel brokerage firm Atlas Hospitality Group

The Federal Open Market Committee voted to reduce the federal funds rate to a range of 4.25% to 4.5%, down a full 100 basis points from its post-pandemic peak. Its first cut in this run arrived in September, dropping the rate 50 basis points to a range of 4.75% to 5%. A 25-basis-point cut followed in October.

The FOMC also indicated two likely cuts in 2025 should conditions call for it.That’s down from four cuts in 2025 projected by the FOMC in September.

Hotel industry perspective
The cutting of the federal funds rate affects the prime rate, which affects personal loans or credit card debt, but most hotel loans are tied to the five- and 10-year Treasury rates, which have gone up since the Fed started cutting rates, Reay said.

“It’s still making it very, very tough for hotel owners to get purchase money financing, and, more importantly, to get refinanced out of their loans that are coming due,” he said.