The Federal Reserve recently announced a long-hoped-for rate cut, potentially enabling easier behavioral health dealmaking.

Dealmaking in behavioral health has diminished in recent years after cresting in 2021. The same year, the inflation rate took off. The following year, the Federal Reserve, the American central bank, raised interest rates at the fastest clip in recent history. Debt financing, which is common in dealmaking, became more expensive because those interest rates are often tied to the Fed’s rate.

However, after hiking rates and holding them at levels comparable to the run-up to the Great Recession of 2008, the Federal Reserve’s Federal Open Market Committee voted on Sept. 18 to enact a one-half-percentage-point rate cut — to set the Fed’s effective rate to a range of 4.4% to 5%.

“Our restrictive monetary policy has helped restore the balance between aggregate supply and demand, easing inflationary pressures and ensuring that inflation expectations remain well anchored,” Jerome Powell, chair of the U.S. Federal Reserve, said at a press conference.

Powell cited solid GDP growth, resilient consumer spending and a cooling labor market as indications that inflation was in check. U.S. Bureau of Labor Statistics data show that inflation has been in the 2% range for the last few months and is trending downward.

Throughout the year, signals pointed to a mellowing economic environment. Several experts have communicated that they expected an interest rate cut to trigger increased deal and investment activity in behavioral health because of a host of corresponding factors.

“The [0.5 percentage point] rate cut is more aggressive than the .25 cut many observers anticipated, which will stimulate even more enthusiasm for buyers to get back into the game,” Dexter Braff, founder and president of the M&A firm The Braff Group, told Behavioral Health Business. “Given that the Fed likes to be conservative and phase in rate changes to see how the market reacts, the cut is almost assuredly the first of a series to be enacted through 2025.”

Steve Garbon, managing director at The Braff Group, said that strategic acquirers will be more eager to “deploy cash than have it sit on the balance sheet.” Further, he pointed out that private equity funds are holding on to record levels of aging capital, sometimes called dried powder.

“The portion of overall dry powder that is three years or older is at record levels and given a typical PE fund life, the dry powder needs to be invested soon to generate adequate returns for their limited partners,” Garbon said.