Preparing for Steady Interest Rates and Shifting Tariffs

Over my 26 years in the construction industry, interest rates have always captured attention, serving as an important indicator for project planning, bidding confidence and financing opportunities.

However, ongoing tariffs have increasingly overtaken traditional factors in influencing material pricing, signaling a shift in market dynamics.

The challenge for success in 2026 is that interest rates are evening out while tariffs continue to tilt the economic axis.

With that context, let’s examine recent interest rate trends, their implications, the role of tariffs and how to prepare for 2026 and beyond.

The Impact of Interest Rates on Construction Projects

The commercial construction industry examines interest rates to help predict economic health and profit viability.

Rate projections influence whether contractors feel comfortable undertaking riskier, more expensive projects.

That’s because when interest rates rise, borrowing becomes more expensive for developers, contractors and project owners, increasing the cost of project financing.

Having a clear view of recent interest rate trends allows contractors to approach project planning and pricing with greater confidence.

Recent Interest Rates

Commercial construction borrowing costs typically run about 2.5% to 5% higher than the federal rate due to added risk, limited collateral during the building, borrower credit considerations and lender-specific criteria.

Regardless, the federal funds rate — the rate set by the Federal Reserve — remains the key benchmark for where construction rates are headed because it sets the foundation for pricing across the market.

Understanding that connection helps explain how shifts in federal interest rates have influenced construction financing in recent years.

According to Reuters, most economists anticipate two modest federal fund rate cuts later this year. That timeline technically remains uncertain, as the Federal Reserve did not cut rates in January. However, one potential reduction is expected after US Federal Reserve Chair Jerome Powell’s term ends in May.

All of this is promising. It’s some of the most encouraging percentages we’ve seen in a while. However, while these stabilizing federal fund rates offer contractors reassurance and a clear path for project financing, challenges like volatile material pricing and tariffs continue to influence overall project costs.

Tariffs Continue to Raise Material Prices

Commercial construction is a complex industry because you have these lower, stable interest rates but because that coexists with high-impact tariffs, there is still a lot of uncertainty.

Construction input prices — or the costs of materials, services and resources related to project progress — increased by 0.6% from October to November, according to Associated Builders and Contractors (ABC). Taking a closer look at the numbers:

• YOY construction input prices increased by 3.4%
• However, items that are affected by tariffs like aluminum mill shapes and primary and secondary nonferrous metal pricing increased by 25% from 2024

As material costs continue to steadily rise, proactive planning and project budgeting have become more crucial than ever to protect profit margins.

Construction professionals are still adjusting, but the outlook remains fairly positive as ABC’s Chief Economist, Dr. Anirban Basu notes that contractors “are on net optimistic that their profit margins will expand during the first half of the year, based on ABC’s Construction Confidence Index, albeit slightly less optimistic than they were at the same time last year.”

In translation: tariffs may be shaking up the economy, but the industry is adapting and progress is not completely halted. And with the right approach, profits are still very obtainable.

How to Approach Project Planning 2026

According to ConstructConnect’s Project Stress Index, project abandonments, pauses and bid delays have dropped by 18.7% from November to December.

Overall, the drop in abandonments and pauses proves that contractors are finding ways to move projects forward, despite material pricing volatility.

As you continue to adapt you should consider:

• Reviewing your current systems to ensure you have access to real-time data to make fast, informed decisions
• Strengthening your procurement strategy, such as bulk purchasing and diversifying suppliers
• Maintain proactive communication with suppliers to understand current market pressures, availability and tariff-related pricing shifts
• Standardizing processes to avoid unnecessary rework and overruns
• Stay informed about the latest interest rate and tariff shifts

As the market adjusts, the advantage will belong to contractors who remain aware, flexible and decisive.

For the rest of 2026, firms that proactively manage costs, monitor financing conditions and align project timelines with market realities will be best positioned to protect margins and capitalize on opportunities.