DALLAS — This article was originally published by our content partners at the Dallas Business Journal. You can read the original article here.
Businesses finally got the relief they have been looking for after Federal Reserve decision makers voted Sept. 18 to implement its first rate cut since 2020.
After taking interest rates to near zero in 2020 amid the pandemic, the Fed implemented 11 hikes between March 2022 and July 2023 to slow the economy and quell soaring inflation. Those hikes have had a wide-ranging impact on the economy, even in a booming region like Dallas-Fort Worth. Many banks have seen loan demand fall, while businesses seeking capital to grow have found it harder to borrow.
While most pundits expected a cut, it was unclear how far the Fed would go. Many observers expected at least a quarter-percentage-point cut, while others predicted the half-point cut the Fed ended up implementing. Here's what local leaders including lenders and borrowers in North Texas are saying about the cut and the impact they think it will have.
David Baty, CEO, Texas Republic Bank:
"Certainly, the higher interest rate environment has served to accomplish its purpose of cooling the economy, and slowing or reducing the rate of inflation which was needed. Some say the Fed held rates up too long, but I disagree and think that we needed to slow down. The higher rate environment definitely reduced our deal opportunity and deal flow through the first half of this year, but we have seen a marked increase in deal opportunity heading into the second half of the year and the rate reduction will only serve to further enhance that deal flow. The strength of the economy in Texas and in the metroplex in particular is still solid. The rate reduction will also help those banks (Texas Republic Bank is not one of them) that made significant long-term investments in bonds and loans at fixed rates several years ago when rates were real low."
Matt Haley, managing principal, Apricus Realty Capital:
“For commercial real estate, it’s helpful. If you go back to early 2022 … a 50 basis point reduction is nice but it’s not overwhelmingly meaningful with how much they raised them since early 2022. That [rate cut] will help valuations but it’s not a magic bullet helping people who are over-levered or have a high cost of debt from a purchase three years ago … It is definitely positive but in the scheme of what they’ve done since 2022, the cost of debt has increased significantly. This helps reduce it, but it’s still got a ways to go.”
John Steinmetz, CEO, Vista Bank:
"I think the Fed's decision to cut interest rates signals the recognition that inflation is entering the target range and unemployment is becoming more of a factor in their monetary policies. Lower rates are going to provide borrowers with lower costs for the entrepreneurs which is a good thing for business-friendly states like Texas and Florida where we operate, and it's going to continue to help attract new growth in business and investor capital coming in. So, you know, we're excited about the impact it's going to have for us. I don't foresee today's cuts drastically impacting the economy either way. I think it's going to take more, but hopefully it provides some additional confidence.
"I think the steep increase over a short period of time really stunned and did impact a lot of entrepreneurs that risked a lot of capital. I think that the series of cuts that they're laying out help us provide a level of confidence that also is going to hopefully stimulate home homeownership. But as a CEO that's been working in it, I've been incredibly impressed by the resilience of the entrepreneurs that we are able to serve. And you know, Texas continues to be a strong state for increased capital injections from all over the country, and so I think this will only further benefit us."
Ray Catlin, Texas regional vice president, LGE Design Build:
“As the Fed moves toward an expected interest rate cut, we see this as a strong signal of confidence in the market. It creates an environment ripe for growth, encouraging the advancement of projects that may have been paused. With capital being deployed and debt secured for key developments, the industry is set for significant activity in the coming months. This decision fosters a sense of optimism, not only for LGE but for the entire Dallas business community, propelling innovation and expansion in construction."
Peter Brodsky, developer of RedBird in Dallas:
“I don't know a developer that isn't eagerly anticipating rate cuts, not only because it means that any variable rate debt that people have will start being less expensive [but] also because real estate values are inversely proportionate to rates. The higher the rates, the lower the real estate value for the most part.”
Douglas Hutt, chairman and CEO, Dallas Capital Bank:
"Borrowing clients have weathered higher rates well, at least to date. However, they will certainly embrace today’s cut as well as anticipation of additional near-term cuts. The flipside is that short-term deposit rates will begin to come down, and we will begin to return to a normalized environment where longer term bond and deposit rates will once again earn more than short-term deposit rates.
While most assumed we would get a 25-basis point cut, more recently the market began anticipating a 50-basis point cut, and that is exactly what the Federal Reserve did today. It would seem that the Fed has become more focused on averting a recession than they are about finishing the job on inflation. It was also a bit surprising that the Federal Reserve would make this fiscal accommodation as we head toward the November election."
Oscar DeLeon Jr., operations chief, Carrollton-based BCI Janitorial:
"I am relieved because we are in growth mode and we are using our line of credit to facilitate internal changes we are making."
Dan Meader, managing partner and founder, Trinity investors:
"We view the Federal Reserve's decision to lower interest rates as a highly favorable development for alternative investments, private equity, and the broader U.S. economy. After an extended period of rising rates, this shift is a welcome relief, particularly for sectors like real estate, where financing costs play a critical role. By lowering borrowing costs, we anticipate enhanced free cash flow across our portfolio, which in turn positions us to deliver stronger returns to our investors. Additionally, lower rates typically increase demand for real estate and other assets, driving up property values and creating attractive growth opportunities. The favorable borrowing conditions also enable us to pursue new acquisitions more aggressively, allowing us to capitalize on strategic opportunities in a buyer-friendly market."
Phillip Huffines, co-founder and co-owner, Huffines Communities:
“Businesses will have literally billions of dollars in savings on interest costs. So you can think about this, most businesses have a lot of short-term debt: A lot of developers, apartment owners, people that have built apartments have short-term debt, two-year debt or five-year debt. Well, when that goes down, if the debt totals billions, they save millions of dollars. That cost savings can be passed on to consumers, whether it's in purchases of houses or in rent by the landlord and the apartment complex."
Tommy Spinosa, managing partner, Enverra Real Estate Partners:
"The exact amount is less important than the fact that rate cuts are starting. That’s what’s significant about today. The lack of lending capital from banks and other institutions has been the main driver behind the inability of borrowers to refinance, which is leading to the distress we’re seeing in CRE. A rate cut, regardless of its size, can help bring lenders slowly back into the market, providing much-needed liquidity and refinancing opportunities and new transactions."
David Lehde, director of government affairs, Dallas Builders Association:
"There should be an indirect downward pressure on mortgage rates, although we have seen those rates come down some already with the expectation of easing monetary policy. For housing, the more important benefit is that the reduced federal funds rate will lower interest rates on acquisition, development and construction loans that builders use to finance lot development and home construction. Lower rates for this kind of financing means more housing supply which helps battle 'shelter' inflation."
Zach Gensior, co-founder and managing partner, Alpine Start Development:
“Within the realm of ground-up development, this will reduce financing expenses and the overall cost of capital for projects, which has been a key hindrance to project economics meeting the threshold to attract financing. I don’t anticipate that today’s rate reduction will move the needle on projects that are stalled and unable to attract capital today. However, a downward trend in the policy rate increases the likelihood of more projects starting in the medium-to-long term.”
Noor Adatia, Seth Bodine, Plamedie Ifasso, Davie Nguyen and Bill Hethcock contributed to this report.