This Week in Credit Risk: The Fed Raises Rates for the First Time Since 2023
The Federal Reserve raised rates to 3.75% to 4.00%, its first increase since 2023. Three things every credit team should do right now.
The Federal Reserve raised its target rate to 3.75% to 4.00%, the first increase since 2023, with another possible before year-end. Credit teams should identify variable rate borrowers running tight on cash flow, rerun rate sensitivity for pipeline deals modeled at last week’s rates, and review CRE loans maturing over the next 12 to 18 months.
How Does a Rate Increase Affect Variable Rate Borrowers?
Prime-based borrowers repriced right away, and SOFR-based loans follow at their next reset. The ones to watch are borrowers already running tight on cash flow, because a rate increase falls straight through to debt service coverage.
A short list helps: floating rate borrowers whose coverage was near policy minimums before the increase. Those are the conversations to have early, while there are still options. How a rate increase affects DSCR walks through the math.
Pipeline Deals Need Their Rate Sensitivity Rerun
Any deal in the pipeline that was modeled at last week’s rates needs its rate sensitivity rerun. A structure that worked at the old rate may not at the new one, and another increase is possible before year-end.
It is also a good moment to stress test, not just reprice. The question is not only whether the deal works today, but how much further rates can move before it does not.
Review CRE Maturities Against Current Term Rates
Review commercial real estate loans maturing over the next 12 to 18 months against current term rates. Where market rates are above the note rate, refinancing raises debt service, and higher rates can also pressure property values, both of which affect how much a property can carry.
Today is not a crisis. But it is the day to make sure your team is underwriting for reality, not hope.
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Why does a rate hike matter for CRE refinancing?
If market rates at maturity are above the original note rate, debt service on the refinanced loan rises. Higher rates can also push cap rates up and values down, which raises loan-to-value, so the new loan may be sized below the balance due.
Which borrowers should a credit team review first after a rate increase?
Variable rate borrowers whose debt service coverage was already near policy minimums, pipeline deals modeled at the old rate, and commercial real estate loans maturing in the near term.
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Last updated September 17, 2026.