posted higher than expected readings, adding doubt to a future slash.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n\u201cWe do not expect a meaningful turning point in 2025. The Federal Reserve has stated that they would likely have cut rates by now if it were not for the tariff uncertainty,\u201d said Schmidt. \u201cEven with one or two 25 basis point cuts, monetary policy will still be restrictive. It will matter more as a signal to builders that the Federal Reserve is willing to start reducing rates again.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nThe construction industry continues to absorb higher expenses on two fronts, namely construction costs and elevated borrowing costs. These dynamics compound delays, especially for revenue-dependent projects, said Guckes.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n\u201cHigher rates are negatively impacting net operating income expectations for current and prospective developers and owners,\u201d said Guckes. \u201cHigher rates also elevate construction and operating costs all along the supply chain from building product manufacturers to general contractors and trade contractors when they are borrowing capital for their operating needs.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nThat pressure has forced developers to revisit the viability of certain work. Several projects in planning stages relied on expected rate cuts in the first half of 2025, said Schmidt.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n\u201cProjects currently in the planning phase might have financial projections based on certain interest rate assumptions,\u201d said Schmidt. \u201cThose assumptions may no longer hold water, which could result in those projects to be put on hold or potentially scaled back.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n\nContractors want a sign<\/span><\/span><\/strong><\/span><\/span><\/span><\/h3>\nDespite these headwinds, economists say just a tone shift could ignite construction activity.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n\u201cIf nonresidential builders knew there was light at the end of the tunnel, they could start planning projects in a more robust manner sooner,\u201d said Schmidt.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nBut uncertainty may not deserve all the blame, said Ken Simonson, chief economist at the Associated General Contractors of America. He said current interest rates, not the lack of clarity, were the core challenge.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n\u201cThe rate itself, not uncertainty about it, has held down construction of income-dependent projects,\u201d said Simonson. \u201cThe higher cost of funds means owners must charge higher rents or room rates for a project to pencil out.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nAt the same time, inflation continues to weigh on expectations. <\/span><\/span><\/span><\/span><\/span><\/span>Rising input costs for materials<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a>