Construction Industry Responds to Fed Rate Decision: Rate Cut Expectations Dashed, Contractors Shift to Diversification Strategies

Contractors hoping for a Federal Reserve rate cut to ease pressure may have to wait a while longer.

On Wednesday afternoon, the Federal Reserve announced it would hold its benchmarkfederal funds ratesteady in a range of 4.25% to 4.5%. The decision disappointed builders who had hoped rate cuts would spur stalled projects back into motion.

The unchanged rates also keep the pressure on Fed Chair Jerome Powell, who has faced repeated calls from President Donald Trump to cut rates, with Trump even threatening to fire him. Legal experts question whether the president has the authority to do so without statutory cause.

However, the Trump administration has been seeking grounds to remove Powell, including questioning the cost of the Fed's headquarters$2.5 billion renovation project—Trump personally visited the building last week.

But after Wednesday's decision, Trump and thosegeneral contractors hoping for rate cutswill have to hold steady for now.

Private projects stall

Persistently high borrowing costs continue to weigh on developers who rely on traditional financing channels.

Joe Biasi, head of commercial capital markets research at New York City-based commercial real estate advisory firm Newmark, noted that many projects still depend on short-term floating-rate debt. With borrowing costs remaining high andlenders becoming increasingly selective, this financing structure is becoming harder to sustain.

However, not all sectors are slowing down at the same pace.

“Markets that rely on traditional financing will remain cautious or slow through 2026,” said Matt Murphy, core markets leader and leadership team member at DPR Construction, a general contractor headquartered in Redwood City, California. “But sectors with significant capital investment, such asdata centers and manufacturing, are expected to continue growing rapidly.”

This uneven market environment is pushing contractors to rely more on portfolio diversification. Adolfson & Peterson, a general contractor based in Minneapolis, has cushioned the impact of weak commercial activity by balancing public and private projects.

“If rates stay where they are through 2026, we expect a mixed impact on our project pipeline,” said Granger Hassmann, regional president at Adolfson & Peterson. “Private-sector work, especially in residential and commercial markets, will continue to be slow due to ongoing financing constraints.”

In this environment, contractors say the key to keeping projects moving lies in more rigorous preconstruction planning and flexible on-site execution. Robert Brown, CEO of GCM Contracting Solutions, a general contractor based in Fort Myers, Florida, said these measures are essential for risk management and maintaining project momentum.

Brown added that GCM is investing more time in feasibility studies, engineering support, and front-end procurement.

“We’re seeing much more scrutiny on financing and project performance,” Brown said. “Clients want flexibility—whether that means phasing projects, simplifying specifications, or delaying core structural work.”

Hassmann echoed that view. He said Adolfson & Peterson is pursuing early procurement and using value management to ensure project viability. Collaborative contracting models are also helping the company protect budgets and avoid delays.

“We’re having proactive conversations with owners and developers about timing, financing challenges, and how to keep deals alive under market pressure,” Hassmann said. “Our goal is to address potential cost impacts early and provide solutions that keep projects moving without compromising value or schedule.”

Shifting toward public works

With many privately financed projects stalled, contractors are increasingly turning to public projects backed by federal infrastructure funding and local bond measures, said Peter Dyga, president and CEO of the Florida East Coast chapter of Associated Builders and Contractors. This has led to a notable shift in portfolio strategies.

“We’re seeing a clear shift toward public and institutional projects,” Dyga said. “Prolonged high interest rates are making private capital more cautious, while public-sector projects offer more predictable timelines and financing.”

That shift doesn’t mean companies are abandoning the private sector entirely. Murphy said many firms are simply becoming more aggressive in pursuingmarket segments that remain active, such as data center and manufacturing construction.

“When some of our core markets slow down, others pick up significantly,” Murphy said. “That allows us to pivot our focus to those areas without having to take on projects outside our normal scope.”

Fed remains cautious

The Fed’s decision to hold rates steady reflects more than just macroeconomic caution. Powell has repeatedly cited persistent inflationary pressures as a reason to hold off on cuts.

The latestJune inflation data came in higher than expected. The June Consumer Price Index (CPI) rose 2.7% year over year, above the Fed’s 2% inflation target.

“The reason behind it matters,” Biasi said. “If rates stay high because inflation is reaccelerating, that’s a problem for construction activity.”

Newmark’s basket of 21 common construction input prices rose 2.5% in the first half of 2025, nearly matching the mid-year increases in the same periods of 2024 and 2023. But somematerial prices are rising faster。

. Copper wire and cable prices were up 10.3% through June, compared with a 17.6% increase in the same period last year. Biasi said theseprice pressuresare making it harder to underwrite new projects.

“Construction uses short-term floating-rate debt, so expectations of rate cuts help drive project starts—construction lending volumes in the first half of 2025 picked up compared with the same period in 2024,” Biasi said. “But higher rates reduce the number of projects that pencil out.”

He added that the projects that do move forward tend to be smaller or less leveraged.

Not everyone is waiting

Not all companies view rate movements as the deciding factor in whether to move forward with projects. Some developers say they have already priced in current conditions and will continue as long as the fundamentals make sense.

“If the Fed holds rates steady, we don’t expect a significant change in our project pipeline,” said Patrick Chesser, Southeast region president at Minneapolis-based construction firm Ryan Cos. “Everyone who borrows capital wants lower costs, but we’re in a unique environment where cutting short-term rates could actually push the 10-year Treasury yield higher.”

The 10-year Treasury yield is the benchmark for long-term fixed-rate financing, so an unexpected surge could make long-term debt more expensive even if the Fed cuts its policy rate. Chesser said Ryan Cos. updates its project financial forecasts monthly based on yield curve data and avoids betting on political cycles.

“We trust the Fed to continue acting on data, focused on its dual mandate rather than reacting to political pressure,” Chesser said.

Even in a higher-rate environment, projects with pre-leasing, credit tenants, or strong long-term prospects remain viable. “A good project is always a good project, and we focus on what we believe in and are confident we can deliver,” Chesser said. “Locking in the right partners early in the process is critical.”

Outlook for rate cuts this year

The Fed has not ruled out rate cuts this year. But its latest decision, combined with ongoing inflation concerns, suggests policy changes will move slowly.

In the meantime, contractors continue to adjust their strategies, focusing on project fundamentals and long-term planning.

“Many companies are prioritizing the quality of their backlog over quantity,” Dyga said. “High rates are squeezing margins and making firms more conservative in their go/no-go decisions.”

Even if rates do come down,labor constraintscould also prevent a sudden surge in new projects.

“Lower rates could increase demand for projects,” Murphy said. “But how much the industry can build depends on how much labor is available.”