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Contractors felt growing momentum in the construction market after the Federal Reserve cut interest rates again on Wednesday, its third cut in 2025.
The central bank cut its benchmark rate by another 25 basis points, extending a cycle of gradual easing that developers hope will ease borrowing costs in the run-up to 2026.
While the cut bolsters confidence around long-term planned projects, industry leaders emphasized that the small reduction in short-term rates is still not enough to unlock a surge in new non-residential developments.
In other words, the cut continues the right trend for contractors, but still won’t materially change viability, said Granger Hassmann, Gulf States regional president at Adolfson & Peterson, a Minneapolis-based general contractor.
“The recent rate cuts by the Fed are good news, but I don’t see this cut moving the needle much,” Hassmann told Construction Dive. “It’s clearly a step in the right direction, especially if this trend continues over the next two months.”
For projects already deep in planning, the Fed’s cut adds another boost, but not enough to jump-start immediately, said Scott Lyons, prime commercial market leader for DPR Construction, a Redwood City, Calif.-based general contractor. Construction planning activity fell 1.1% in November, but is still around 36% more since the year compared to the same period last year.
“We think it’s going to be another psychological boost that will keep the momentum going for these projects in the planning phase,” Lyons told Construction Dive. “In the same breath, we don’t think this will trigger a shovel in the ground yet for these projects.”
Financing conditions remain tight, particularly for commercial asset classes that are still operating with excess supply, Lyons said.
“Lenders will continue to push for signed tenants or legitimate demand for other types of projects, so we have an oversupply challenge in the commercial real estate space until there is greater absorption in the office and R&D space,” Lyons said. “We think lenders will stick with it.”
Capital market executives echoed that caution, noting that long-term rates, not short-term cuts, will ultimately determine how quickly construction activity picks up. According to the latest report from the Dodge Construction Network, construction jobs rose 21.1% in October, largely due to high value mega project activitymainly data centers. Without those high-tech buildings, many of which are financed with debt, growth looked more moderate.
“Debt markets are currently extremely liquid across the capital stack,” said Dan Levitt, executive vice president of capital markets at Ryan Cos., a Minneapolis-based construction company. “A small rate cut marginally lowers the cost of construction, and obviously property owners with short-term loans save a little on debt service.”
But with no movement in the 10-year Treasury yield, which serves as a benchmark for long-term borrowing costs, construction starts won’t change significantly, Levitt said.
“Right now there’s very little correlation between a small Fed rate cut and the 10-year Treasury,” Levitt told Construction Dive. “In other words, a small rate cut by the Fed is unlikely to substantially stimulate non-residential construction starts.”
However, several sectors, including hot data centers and healthcare construction, will remain active regardless of rate changes, said Jason Gabrick, senior vice president of regional operations at Ryan Cos.
“Some emerging market sectors remain almost rate-proof due to strong demand and effective capitalization strategies,” Gabrick told Construction Dive. “We continue to see strong activity in data center, life sciences, medical technology and healthcare projects, regardless of changes in interest rates.”
looking ahead
Another problem lower rates can’t solve is the labor shortage, which will continue to be a major constraint on construction activity, Lyons said. Construction job postings were in “extraordinarily low levels” in Octoberalong with a sharp drop in hiring, according to the most recent data from the US Bureau of Labor Statistics.
“Across the country, there are more projects people want to build than there are people to build them,” Lyons said. “Our industry is taking steps to address this shortage, but we believe it will take a generation to create a skilled workforce to meet demand.”
Still, contractors say the stage is being set for a stronger 2026. everything three trust metrics for sales, profit margins and headcount indicate growth expectations over the next six months, according to Associated Builders and Contractors.
“Even amid the economic turmoil, labor and construction material prices, as well as inflation, have remained relatively predictable,” Gabrick said. “As time has passed since the enactment of the tariffs, our trading partners and vendors have been able to provide more certainty about the impacts. This is in contrast to the challenges the industry has faced during the pandemic, as prices were extremely volatile.”
