The US Federal Reserve has raised the effective federal funds rate by 0.25%, establishing a new range of 3.75% to 4%. This marks the first hike in three years, as the US economy faces enduring inflation issues, soaring energy prices, and escalating bond rates, with the ongoing conflict in Iran, which began in February, further complicating the situation.
Investor sentiment for 2026 initially pointed towards multiple rate cuts, a move that typically energizes capital markets and encourages mergers and acquisitions. However, the dynamics shifted on February 28, when combined US-Israeli military strikes on Iran severely disrupted traffic through the Strait of Hormuz, a critical waterway for global oil transport. Before the conflict, it accounted for about 20% of the world’s oil transit.
Several indicators influenced the Fed's decision to increase interest rates. Currently, the average price for gas stands at $4.36 nationally, compared to $3.18 a year ago, while diesel has reached $6.31—the highest on record. Brent crude oil prices have risen above $100 per barrel from approximately $68 last year, with inflation hitting 3.4% in August, up from 2.9% the previous year. Moreover, yields on US Treasury bonds with maturities of 10, 20, and 30 years have climbed to their highest levels in decades.
Federal Reserve Chair Kevin Warsh, who took office in May, maintained steady rates during his initial three meetings despite pressure for a hike, as inflation remained significantly above the Fed's target of 2%. The growing pressure eventually led to the rate increase, marking the first since August 2023.
"The decision we made today was the right decision to fulfill Congress's mandate for stable prices. Months ago, I stated we would deliver stable prices, and today’s action aligns with that goal," Warsh stated at a press conference following the announcement.
The US gaming industry could face challenges amid this economic shift and a return to higher interest rates after years of post-Covid recovery. Many gaming stocks have lagged behind broader market performance in recent years, and a considerable amount of mergers and acquisitions has been driven by private equity firms that can better take advantage of lower valuations. There was optimism that declining rates would help ease financial pressures in the industry.
Chad Beynon, lead gaming analyst for Macquarie, commented, "Publicly traded valuations reflect the current interest rate environment. Whether it's a long-term financial model for a growth company or a standard business, cash flows are less valuable in a higher interest rate climate."
Data from Yahoo Finance indicates a 41% decline in the resort and casino sector over the last five years, compared to a 7% increase across the overall gambling sector, which includes large sportsbook operators. In contrast, the S&P 500 index has risen by 71% during that same period.
Earlier this year, two significant developments in the casino industry suggested a growing confidence in the sector. Fertitta Entertainment's acquisition of Caesars Entertainment in May and Barry Diller’s People Inc.’s bid for MGM Resorts reflected bullish trends. However, unfavorable market conditions could alter the viability of both deals.
In July, Fertitta's General Counsel Steven Scheinthal informed the Nevada Gaming Control Board that the company had secured a letter of intent from banks to finance the Caesars deal but was waiting for a more favorable borrowing environment. Fertitta plans to assume nearly $12 billion of Caesars' debt while relying on a financing package valued at $6.6 billion.
"We hope that in the coming months, a favorable window will emerge where the market improves, allowing us to raise the necessary funds, which would then be placed in an escrow account," Scheinthal said at that time.
The anticipated window for favorable financing conditions appears to be receding. Caesars’ proxy filing revealed that during negotiations in spring, Fertitta was unwilling to exceed its $31-per-share offer due to rising financing costs and broader economic risks. Increased borrowing costs since late 2025 reportedly added around $40 million annually to expenses.
Diller made a cash offer of $48.30 per share for MGM shortly after the Caesars agreement was reached. People Inc. ended Q2 with $1.1 billion in cash, but acquiring 74% of shares along with MGM's long-term debt exceeding $6 billion would necessitate some financing. MGM has since formed an independent committee to evaluate Diller's bid but has not commented further.
The likelihood of additional rate hikes looms large. Historical patterns show that during periods of rate increases, the Federal Open Market Committee has typically raised rates six to seven times while pausing just once after an initial hike since the 1990s. Warsh expressed optimism about the economy’s stability going forward.
"Economic activity is expanding solidly," he remarked Wednesday. "While uncertainty remains high due to geopolitical factors, domestic spending remains robust, productivity is growing, and capital investment is strong."
Post-announcement, the chances of one more rate hike in 2026 increased to 48% on Polymarket. The contract gauges expectations for reaching an upper limit of 4.25% for the Fed Funds Rate by year-end. There is a 21% likelihood that the Fed will not implement any further hikes this year, with slightly lower odds of rates hitting 4.5%.
Multiples.VC reports that the average enterprise multiple for leading US-listed gaming firms is currently at 10x, whereas the overall market average is 23.9x and 19.7x for companies positive on EBITDA, indicating that the gaming sector is undervalued in comparison to others. A report from Fitch Ratings characterized the outlook for most North American gaming companies as "stable," suggesting sufficient rating headroom despite consumer challenges.
Beynon echoes this sentiment, highlighting the relative stability of gaming companies even during difficult economic periods like the Covid-19 pandemic. He points out that bankruptcies in the gaming sector have been relatively low compared to the broader market. Both land-based and digital gaming firms maintain optimistic views ahead.
"We recognize that this sector has underperformed consistently due to lacking the growth seen in tech companies or perceived cash flow stability, which we believe is actually present. We have identified value in the gaming sector for a few years, particularly this year," he stated.
