1. The Fed held rates a third straight time. Markets just priced out every cut for 2026.
The FOMC voted April 29 to hold the federal funds rate at 3.5 to 3.75%, the third consecutive hold. The committee was split. Some members wanted to cut to support a softening labor market, others wanted to hold given inflation stuck above the 2% target. Tariff-driven price pressures and elevated energy costs are the culprits. Markets that priced in three rate cuts back in January are now pricing in zero cuts for all of 2026. Cost of debt on sponsored deals remains around 7% or higher.
Why you care: Higher-for-longer rates compress LBO returns and force sponsors to lean on equity or PIK structures. Expect interviewers to probe how the rate environment shapes deal economics across M&A and leveraged finance.
Interview angle: "With cost of debt still elevated around 7%+, we'd likely see tighter leverage ratios and more sponsor equity contribution, which compresses returns unless operational improvement offsets the multiple compression."