Rate rise could exacerbate longstanding problems for the US PE industry
Madeline ShiThu, September 17, 2026 at 1:23 AM GMT+3 3 min read
Private equity dealmakers in the US are poised for higher borrowing costs as the Federal Reserve on Wednesday raised interest rates for the first time since 2023.
The rate-setting committee unanimously agreed to raise the benchmark interest rate by a quarter of a percentage point, and officials largely agreed that, at the current trend, one more hike would be needed in 2026.
The decision lifted the federal funds rate to a target range of 3.75% to 4%, in line with market expectations heading into the September meeting.
Kyle Walters, a PE analyst at PitchBook, described the rate hike as "directionally negative for PE exit activity," though it is unlikely to cause significant damage on its own.
"The larger question is whether this rate hike is a one-off or if more are to follow. If it's the latter, that would have a more negative impact on monetization efforts, as most LBO debt is floating rate, which results in higher interest expense on these companies, and can damage the financial statements prospective buyers look at."
A series of rate hikes will put more pressure on an industry already facing tough times, beset by AI's threat to the future of once-resilient business models and an exit bottleneck that has reduced cash distributions and dampened investor appetite.
The bottleneck began to form as far back as 2022, when the Fed sharply hiked interest rates to rein in runaway inflation, and has driven a stubborn gap between the pricing expectations of buyers and sellers ever since.
US PE exit value fell to $102.6 billion in the second quarter, down 46.3% from the previous quarter and 7.4% year over year, according to PitchBook's latest US PE Breakdown.
The middle market bore the brunt of the decline, recording just $24.7 billion in exits—the lowest quarterly reading since Q2 2020, underscoring the liquidity constraints the lower end of the market is facing. Mega-exits above $1 billion accounted for the majority of the second quarter's tally.
"As deals get more expensive, exits get harder, and investors need to prepare for a shift in pricing and in exit strategy," said Jeremy Swan, managing partner and practice leader of asset management and financial services at business advisory firm CohnReznick, of Wednesday's rate hike.
Exit time horizons have been getting longer, well before the announcement. The median hold period for US PE assets reached 4.5 years at the end of Q2 2026, the highest level in about two decades.
The move puts Fed chairman Kevin Warsh at odds with President Donald Trump, who nominated him for the job in March. The president has repeatedly pressured the Fed to lower rates, threatening earlier this month in a Truth Social post that he would halt trade with countries with which the US maintains trade deficits if the Fed failed to follow.
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Warsh, sworn in as Fed chief in May, has declined to provide forward guidance to the market since he took office. He reiterated that preference on Wednesday but stressed that the Fed is "unwavering" in serving its purposes of seeking full employment and price stability.
A resilient labor market, stubborn inflation and geopolitical risks forced the committee's hand, he said, adding that the rate increase was the right decision to "deliver the remit" that Congress gave the central bank.
"Those who are least well off have the most to gain from a durable expansion, a solid labor market and stable prices," he said, referring to the roughly half of Americans who are living paycheck to paycheck and own no financial securities.
This article originally appeared on PitchBook News
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