On Wednesday, the US Federal Reserve raised the effective federal funds rate by 0.25%, bringing it to a range of 3.75% to 4%. This marks the central bank’s first rate increase in three years, responding to persistent inflation, surging energy prices, and rising bond rates amidst the ongoing war with Iran, which began in February.
As investors began 2026, they anticipated that the Fed might initiate multiple rate cuts, typically seen as a boost for capital markets and deal-making momentum. However, the dynamics shifted abruptly on February 28 after joint US-Israeli military actions affected oil traffic through the Strait of Hormuz, a crucial global shipping lane that facilitates about 20% of the world’s oil trade.
Several key economic factors influenced the Fed's decision to increase interest rates. Currently, the average price for gasoline sits at $4.36 per gallon, significantly higher than the $3.18 average from a year earlier, based on AAA data. Diesel prices have surged to a record high of $6.31 per gallon, and Brent crude oil prices have risen above $100 per barrel, a jump from around $68 in the previous year. Inflation recorded for August stands at 3.4%, up from 2.9% last year. Additionally, the Treasury yields for 10-, 20-, and 30-year bonds are hovering at their highest levels in decades.
Federal Reserve Chair Kevin Warsh, who took over in May, had maintained rates during his initial three meetings despite rising pressures for a hike due to inflation exceeding the Fed's 2% target. The clamor for action eventually led to this latest increase, which was the first since August 2023.
"The decision we made today was the right decision to deliver on the remit that Congress gave us to ensure stable prices… Some months ago, I said we will deliver stable prices; today’s action is consistent with that," Warsh stated during a Fed press conference.
For the gaming industry, the economic shift seen in 2026 and an environment of elevated interest rates, following years of post-COVID easing, could dampen the prevailing optimism.
Recent performance trends indicate that leading gaming stocks have lagged behind the broader market. Mergers and acquisitions have predominantly involved private equity firms capable of seizing opportunities at lower valuations. There had been expectations that falling interest rates would relieve some of these financial pressures.
Chad Beynon, a lead gaming analyst for Macquarie, commented, "Publicly traded valuations are a reflection of the current interest rate environment. Whether it’s a long-term financial model on a growth company, you’re going to discount that back at a higher rate, or if it’s just a standard four-wall business, the cash flows in a higher interest rate environment are worth less."
Data from Yahoo Finance indicates the resort and casino industry has seen a 41% decline in value over the past five years. The overall gambling sector, which comprises major sportsbooks and online platforms, has grown by 7%. In contrast, the S&P 500 index has surged by 71% during the same period.
Earlier in the year, two significant developments in the casino industry suggested a bullish outlook: Fertitta Entertainment’s acquisition of Caesars Entertainment in May and the bid from Barry Diller's People Inc. to acquire MGM Resorts. However, the changing market conditions could impact the viability of these deals.
In July, Fertitta’s General Counsel Steven Scheinthal informed the Nevada Gaming Control Board that they had received a letter of intent from lenders for financing but were waiting for more favorable borrowing conditions. Fertitta is taking on nearly $12 billion in debt from Caesars and has committed to a financing package worth $6.6 billion. "Our hope is that in the next few months there will be a window of opportunity where the market will be hotter and it’s a more interest-rate-friendly environment where we can raise the money and then just put it in an escrow account," Scheinthal remarked at the time.
That anticipated window now appears to be receding. Fertitta's proxy filing indicated that he was unwilling to exceed a $31-per-share offer, citing higher financing costs and increasing macroeconomic risks. Since late April, higher borrowing costs have added an estimated $40 million annually to expenses since the negotiation process began.
Diller placed an all-cash offer of $48.30 per share for MGM shortly after the Caesars deal announcement. Although People Inc. ended the second quarter with $1.1 billion in cash, acquiring 74% of MGM’s shares and covering its $6 billion long-term debt will require some financing. MGM has formed an independent committee to assess Diller’s offer but has yet to provide any updates.
Looking ahead, it is likely that this month's rate hike will not be the last. Historically, the Federal Open Market Committee has only paused after an initial rate increase once since the 1990s, usually resulting in six to seven increases throughout a tight monetary cycle. Warsh has expressed confidence in economic stability moving forward.
"Economic activity is expanding at a solid pace," he told reporters following the decision. "While uncertainty remains elevated due in part to geopolitical developments, domestic spending has been resilient, productivity growth is strong, and capital investment is robust."
After the recent rate decision, Polymarket reported a 48% chance of an additional rate hike this year. The prediction suggests the upper limit of the Federal Funds Rate could reach 4.25% by year-end 2026, while the probability that rates will remain steady throughout the year is now at 21% and slightly lower for reaching at least 4.5%.
According to Multiples.VC, the average enterprise multiple (EV/EBITDA) of leading US-listed gaming companies is about 10 times. New York University's data suggests the overall market average is 23.9 times and 19.7 times for EBITDA-positive firms, highlighting the gaming sector's relative undervaluation compared to other industries. A recent report from Fitch Ratings indicated that most North American gaming companies maintain a "Stable" outlook with adequate rating headroom, despite challenges facing consumers.
Beynon of Macquarie shares this optimistic perspective, noting the relative resilience of gaming companies during challenging economic times, such as the COVID-19 pandemic. He points out that bankruptcies in the sector remain low compared to the broader market, suggesting that both land-based and online gaming companies have reasons for optimism.
"It’s certainly not lost on us that this sector has underperformed for several years in a row just because it doesn’t have either the growth of tech companies or the perceived insulation of cash flow businesses, which we believe it does. We’ve thought there’s been value in the sector for a few years, particularly this year," Beynon concluded.
