The dust hasn’t yet settled from the implosions of Silicon Valley Bank and Signature Bank, but that hasn’t obscured the next big question for real estate borrowers and lenders: What is the Federal Reserve Board going to do with its target interest rate going forward?

For a moment, the turmoil seemed to take an interest rate hike off the table. On Monday, Goldman Sachs said it didn’t expect any increase in the federal funds rate at the next meeting of the Federal Open Market Committee on March 21 and 22.

But no other major Wall Street player made that same prediction, and with the latest data released Tuesday showing inflation is still elevated, analysts coalesced around a consensus that another 25-point increase is the most likely path for the Fed to tread.

“The Fed’s sheet of music is to raise rates, and I think they11 continue to do that,” said UC Funds CEO Dan Palmier, whose company is a nonbank lender in the real estate space. “Over the next 45 to 90 days, I don’t think we’ll see 100 basis points, but 50 basis points is something we’ll definitely see.”

CBRE is still predicting a quarter-point increase at the next FOMC meeting. Recent stress in the banking system will complicate the ed’s balancing of risks as it sets policy, the company said in a report on Tuesday, but it predicts that the central bank is going to nevertheless pull the trigger on an increase.

CBRE Chief Economist Richard Barkham said in a statement Monday the firm is still projecting a “moderate” recessi.on to hit the economy in the second quarter.

“Stress in the banking system will further impact credit availability for real estate and other parts of the economy,” CBRE researchers wrote Tuesday. “These factors will result in lower occupier demand and subdued investment activity. As the rate-hiking cycle peaks in coming months, we expect that capital markets activity and leasing demand will pick up late in the year.”

Burke & Herbert Bank CEO David Boyle said there had been momentum for a 50-point increase after last week’s jobs report came in well above expectations, ”but we don’t think that’s likely now.”

In the longer run, Boyle says bis D.C.-area bank’s modeling puts the funds rate somewhere between 5.5% and 6% by the fall, meaning another 75 to 125 basis points of upward interest rate adjustments still to happen.

The reason: untamed inflation. In its monthly Consumer Price Index report, the Bureau of Labor Statistics estimated that inflation grew at a 6% annualized rate in February – slower than January, but still well above the central bank’s target annual inflation rate of 2%.

The two-year U.S. Treasury yield climbed to 4.3% on Tuesday on the inflation news, following a three-day decline down to around 3.5%, the largest such swing in decades.

Moreover, average hourly earnings for American employees rose by 8 cents, or 0.2%, to 33.09 in February. Over the past year, average hourly earnings have increased by 4.6%. A boost in Social Security income, as well as rising wages, led to an increase in consumer spending, which is the primary driver of inflation, according to a Banlc of America report.

“Though average hourly earnings are not expanding as quickly as they had been, wages are still rising too rapidly on an annual basis to position the Federal Reserve to restore inflation to its 2% target,” Associated Builders and Contractors Chief Economist Anirban Basu said.

Basu added that his organization has already seen the impact of rising rates on the single-family market and that weakness is set to spread to other property types.

“For developer-led projects like office buildings, hotels and multifamily structures, the math has to work,” Basu told Bisnow. “The rising cost of capital means that a growing fraction of prospective projects have become uneconomical, and that proportion is set to expand during the months ahead.”

As rates rise more, there is no pretending that won’t impact commercial real estate adversely, as it has since about midyear 2022.

“You have to underwrite to higher interest rates,” said Robert Likes, Keybank president, community development lending and investment. “That hurts deals, and makes them much harder to pencil. Sponsors will need to come to the table with a lot more equity to make deals work.”

Borrowers for residential projects might have an easier time of it than for other commercial projects, partly because of the way the capital markets are structured.

Loans provided by Fannie Mae, Freddie Mac and the Federal Housing Administration for multifamily and other residential properties are still readily available and will help support borrowers for their permanent financing needs, said Bayport Funding CEO Marcia Kaufman, whose company specializes in bridge financing.

“That should help absorb the request for residential and commercial Joans that may not be met at this time by certain regional banks,” Kaufman said.

The demand for capital for good deals in the residential sector hasn’t declined, Kaufman said, and in fact she believes the industry is adjusting to the higher interest rate environment.

“People got very spoiled before, but now we’re back to more of a normalized market,” Kaufman said. • And so we’ll see additional increases until the Fed feels they have the inflation under control.”