Federal Reserve policymakers are keeping interest rates on hold, as the war in Iran sends oil prices soaring and threatens to spark a new cycle of inflation.
The chairman of the Fed Jerome Powell joined an 11-1 majority on the Federal Open Market Committee to vote to leave the federal funds rate unchanged at Wednesday’s meeting in Washington, DC, viewing inflation as a greater risk than weakness in the labor market.
The decision leaves the Fed’s overnight rate unchanged at 3.5% to 3.75%, where it has stood since December. After cutting rates three times last fall, the Fed paused at the January meeting, and the prospect of future rate cuts is growing in uncertainty.
The Fed’s reluctance to cut rates has drawn the ire of the President Donald Trumpwho wants an immediate reduction in prices since he started his second term. Trump repeated the call Wednesday morning, writing on his Truth Social site: “When is ‘Too Late’ Powell lowering INTEREST RATES?”
Mortgage rates, which touched a three-year low of 5.98% last month, have risen steadily since the US-Israel war with Iran began in Feb. 28. Average mortgage rates reached 6.11% last week, according to Freddie Mac.
Rising prices, fueled by growing fears of a global energy crisis, threaten to derail the crucial spring housing season, which had looked promising for buyers before the war began.
Realtor.com® Chief Economist says: “Mortgage rates may rise this week, but this won’t be in response to the Fed meeting. Danielle Hale. “Rather, developments in the Middle East that may have spilled over into deflation have been the main driver of late.”
The Fed does not directly regulate loan rates, but instead sets the rate of interest for short-term borrowing among commercial banks.
The central bank uses high interest rates to fight inflation, and low rates to stimulate the labor market, in keeping with the Fed’s dual mandate of price stability and high employment.
What the Fed’s rate decision means for home buyers
Bankrate Financial Analyst Stephen Kates says that with the Fed’s signature ban, home buyers should expect mortgage rates to stay above 6% throughout the spring.
“Buyers who are willing to buy houses should not expect an immediate price reduction that will pave the way for refunds,” he said. “If you try to date money and marry a house, you may be setting yourself up for a difficult marriage.”
Eddie GarciaCEO of national brokerage firm Realty of America, puts a more positive outlook on the rate freeze, saying homebuyers should view it as a stabilization measure that reduces uncertainty.
“The last two years created uncertainty in the entire market. It wasn’t just high prices, it was a constant movement. Buyers and sellers didn’t know where things were going, so they stopped,” Garcia told Realtor.com. “When that uncertainty starts to settle, people come in.”
Accordingly, Michael Reisorreal estate agent in Texas and New York and founder of the Reisor.Team at Compass, predicts that 2026 will be the year when home buyers step aside and stop trying to time interest rates.
“Currently, many customers realize that waiting for the ‘perfect’ time is no longer a reality,” he said. “If buyers continue to wait for prices to drop, home prices may continue to rise in the meantime.”
Meanwhile, Garcia says that while he has yet to see an impact on housing demand due to political tensions in the Middle East, a prolonged increase in oil prices could change that.
“That disproportionately affects entry-level buyers,” he says. “As gas and daily costs increase, disposable income decreases, which directly affects how much consumers can afford in monthly payments.”
While that won’t disrupt the housing market, it will reduce activity in low-priced areas and make buyers more cautious, Garcia predicted.
“That said, the biggest problem is still given. We don’t have enough homes, especially at affordable levels. Until those changes, demand will continue to hold better than people expect, even with external pressure,” he said.
Garcia says he often reminds clients that real estate is local, and that what happens nationally doesn’t always affect a particular area or property.
“For retailers, that means pricing correctly from day one based on real data,” he says. “For consumers, it means understanding where the opportunities are and how to compete strategically without overpaying.”
It develops the story, more to follow.
