- Fed holds interest rates at 3.5 to 3.75 percent.
- AAHOA members say high rates hurt renovation, growth plans.
- Median projection sees rates at 3.8 percent by the end of 2026.
Kevin Warsh, speaking in his first remarks as the new Fed chairman, said the economy is growing at a solid pace despite uncertainty linked in part to the war with Iran, CoStar reported. Warsh was clear that bringing inflation down to the Fed's 2 percent target remains the top priority. The Fed cut rates three times toward the end of 2025 but held steady in January and March before doing so again now.
For hotel owners, another rate hold means continued high borrowing costs as many seek to renovate properties and plan for growth.
“While AAHOA members understand the need for stability, high rates are making it harder to refinance debt and invest in their hotels,” Rahul Patel, AAHOA chairman, told CoStar.
Patel said the longer borrowing costs remain high, the longer growth stays out of reach for hotel owners who are ready to reinvest in their properties and the communities they serve. He urged the Fed to consider the pressure sustained high rates put on small businesses in capital-intensive industries like hospitality.
Greg Friedman, Peachtree Group CEO, said policy rates may stay restrictive longer than many investors hoped.
"Rather than focusing on the timing of the next rate cut, investors should focus on building portfolios and investment strategies that can perform under current conditions. The winners in commercial real estate this cycle will be those who adapt to today's market realities, not those waiting for yesterday's conditions to return," he said.
Joseph Yi, Palette Hotels chief investment officer, said a fourth consecutive hold, combined with signals that a 25-basis-point increase is still possible later this year, tells investors that elevated rates are not going away soon.
"When rates sit above recent historical norms, deals are harder to underwrite and the transaction market stays tight," he said.
He added that while debt markets stay competitive with private credit filling gaps, equity remains the real bottleneck for most deals right now.
The broader economic outlook helps explain the Fed’s stance. The economy is expected to grow 2.2 percent this year and 2.3 percent next year. Inflation is forecast to be 3.6 percent in 2026 before easing to 2.3 percent in 2027. Fed officials expect the federal funds rate to be around 3.8 percent by the end of this year, indicating that interest rate cuts are unlikely in the near term.
Separately, HotelData.com reported that hotels reduced labor hours per occupied room in the first quarter of 2026 while labor costs continued to rise.
