In September, the US Federal Reserve raised its policy rate by a quarter point, its first increase sinceredactedFor lower mid-market buyers, the effect shows up quickly in the cost of acquisition debt and in how much debt a deal can carry. The Federal Open Market Committee raised the target range for the federal funds rate from 3.5%–3.75% to 3.75%–4%. The Fed’s own projections put the median federal funds rate at 4.1% by the end of 2026, implying one more quarter-point increase this year; 16 of the 18 policymakers who submitted projections expect at least one more hike. Canada Holds For Now: The Bank of Canada held its overnight rate at 2.25% earlier in September and said the upside risks to inflation have increased. Its next decision is on October 28. How It Impacts Deals - Debt capacity shrinks for the same EBITDA: Lenders size acquisition debt on coverage ratios, meaning the cash flow available to cover each year's principal and interest. Higher rates mean higher interest expense on the same debt, so the same EBITDA supports less debt. The gap is filled by more buyer equity, more seller financing or a lower price. - Cross-border buyers face two rate paths: Canadian acquisition loans are priced off Canadian prime, which has not moved. Buyers financing Canadian targets in US dollars, or US targets from Canada, carry the Fed's increase. - EBITDA quality matters more to lenders: When covenant headroom tightens, lenders test the EBITDA behind the covenant harder. An adjustment the seller cannot support becomes a financing problem as well as a pricing problem. Higher rates don’t stop deals, but they shift more risk onto buyer equity and seller notes.