Federal Reserve Raises Target Rate to 3.75-4.0 Percent Range, Lifting Variable HELOC Costs on Rental Properties

The December FOMC action marked the seventh consecutive hike of the cycle and shifted the median dot-plot projection for the terminal rate higher. Primary-source statements show the committee cited persistent inflation above target and a resilient labor market as justification, without carve-outs for real-estate borrowing costs. HELOC pricing, which resets off short-term benchmarks plus margin, immediately reflected the new range.

Owners of unencumbered rental properties now face an incremental 25-basis-point increase in carrying cost on any drawn line. Market data indicate average HELOC rates crossed 8 percent post-hike, compressing net rental yields by roughly 0.4 percent of asset value annually for a $50,000 draw. Fixed-rate second-lien alternatives remain priced 75-125 basis points above variable products, creating a clear incentive to delay or size the line conservatively.

The policy record contains no commitment to pause or reverse; subsequent decisions hinge on monthly CPI and employment prints. If core inflation fails to moderate below 5 percent annualized by March 2023, further 25-basis-point increments remain the base case. Rental-property borrowers therefore price in a higher probability of sustained elevated short-term rates rather than a near-term reversal.