Minutes from the Federal Reserve's Sept. 15-16 meeting, released Oct. 7, indicated that most policymakers believe another interest rate increase would likely be appropriate by year-end. The minutes follow recent remarks by Federal Reserve Vice Chair for Supervision Michelle Bowman, who said she expects regulators to finalize the revised Basel III capital framework by year-end, while pointing to early results from recent leverage ratio reforms. (Federal Reserve, Sept. 18 | Federal Reserve, Oct. 1 | American Banker, Oct. 1 | Federal Reserve, Oct. 7)

Fed Outlook

• Most Federal Open Market Committee (FOMC) participants indicated that another rate increase would likely be appropriate before year-end, following the Fed's unanimous decision in September to raise its benchmark rate by 25 basis points, bringing the target range to 3.75%-4%. Officials cited persistent inflation, resilient economic activity, and diminished labor market risks in support of additional tightening. (Federal Reserve, Oct. 7 | Wall Street Journal, Oct. 7 | Associated Press, Oct. 7)

• Credit and Housing. Several participants pointed to easier bank lending standards, while a few noted that elevated mortgage rates continued to weigh on housing activity. Treasury yields rose roughly 35 basis points across the 2- to 10-year range between meetings, while residential mortgage rates increased slightly more than the 10-year Treasury yield. (Federal Reserve, Oct. 7)

• Regulatory Reform. Bowman said the Fed's recalibration of the enhanced supplementary leverage ratio (eSLR) has expanded large banks' balance sheet capacity and improved Treasury market intermediation. Dealers' Treasury positions increased from approximately $600 billion before the changes to more than $700 billion by the end of April, demonstrating how adjustments to capital requirements can support market liquidity. (Federal Reserve, Oct. 1 | Bloomberg Law, Oct. 1)

• Capital Reforms. Regulators are expected to finalize revised risk-based capital requirements under Basel III and accompanying changes to the global systemically important bank (G-SIB) surcharge before year-end. The proposals, released in March, would reduce aggregate capital requirements for the largest U.S. banks by an estimated 2.4% and revise the treatment of mortgages and mortgage servicing assets to better align capital requirements with risk. (Roundtable Weekly, March 20 | Bloomberg, March 19 | Federal Reserve, Sept. 18)

Why It Matters

• Another potential rate increase, combined with elevated Treasury yields, could extend borrowing and refinancing pressures for commercial real estate (CRE) owners. Nearly $983 billion in CRE mortgages are estimated to mature in 2027, increasing the importance of accessible financing as borrowers seek to refinance existing debt. (Federal Reserve, Oct. 7 | RER Policy Priorities, Capital & Credit)

• At the same time, appropriately calibrated capital requirements could strengthen banks' capacity and incentives to provide CRE financing. While the eSLR changes primarily address Treasury market intermediation, the revised Basel III framework could ease certain regulatory constraints on lending and support market liquidity as borrowers navigate elevated financing costs. (Roundtable Weekly, March 20 | Federal Reserve, Sept. 18 | Federal Reserve, Oct. 1)

Roundtable Advocacy

• The Real Estate Roundtable has consistently advocated for appropriately calibrated, risk-based bank capital requirements that maintain financial stability without unnecessarily limiting CRE lending. RER opposed the original 2023 Basel III proposal, warning that higher capital requirements could reduce credit availability, increase financing costs, and constrain investment in commercial and multifamily real estate. (Roundtable Weekly, March 20)

• In a June 18 coalition letter, RER and other national real estate organizations urged regulators to preserve the revised proposal's improvements while making targeted changes to avoid unnecessarily constraining CRE financing. Recommendations included more risk-sensitive treatment of CRE and multifamily loans, mortgage servicing, and securitizations, along with changes to prevent disproportionate capital charges on common financing arrangements such as mezzanine loans and preferred equity. (Coalition Letter, June 18)

RER will continue engaging with federal regulators and industry partners as the Basel III reforms move toward finalization, advocating for capital requirements that preserve credit availability, support housing and commercial real estate investment, and maintain a stable and liquid CRE finance market.