The Federal Reserve held interest rates steady at a range of 3.5%-3.75%, as reported by multiple sources, citing uncertainty about the economic impact of the Iran war and its effect on inflation.
Key Takeaways
The Federal Reserve kept interest rates steady at 3.5%-3.75% due to uncertainty over inflation from the Iran war. Global energy prices surged, with Brent crude reaching $109 a barrel. The Fed's projections raised year-end inflation by 0.3 percentage points.
According to Sky News and CNBC, global energy prices have surged due to retaliatory attacks between Israel and Iran, with Brent crude oil reaching $109 a barrel. The halt in deliveries through the Strait of Hormuz has exacerbated supply constraints. Reuters noted that European gas prices soared by around 25%, while WTI crude traded at a discount due to U.S. strategic reserve releases.
The Fed's latest economic projections, as reported by BBC and eNCA, indicate an upward pressure on inflation, with forecasts raising the year-end figure by 0.3 percentage points. Federal Reserve Chair Jerome Powell described the outlook as "uncertain" but acknowledged potential short-term inflationary effects from the war. The 2-year Treasury yield rose to 3.845%, reflecting growing concerns about rising inflation, per CNBC.
The decision comes amid mixed signals in the job market and political pressure from President Donald Trump for rate cuts. Powell emphasized that future rate decisions would depend on inflation trends, noting it was "too soon" to assess the war's full impact. The Fed's dual mandate of controlling inflation while promoting maximum employment faces additional challenges due to Trump's immigration policies, which have reduced workforce growth.
Mortgage rates in the U.S. jumped this week to the highest level in three months, as the Iran war fans inflation fears and puts pressure on the U.S. housing market. The 30-year fixed mortgage rate rose to 6.22% in the week ending March 19, up from 6.11% the previous week, according to Freddie Mac as reported by CBS News and PBS. Economists note that current borrowing costs remain well below the 6.67% rate on a conventional 30-year loan a year ago.
The latest uptick is a discouraging sign for house hunters as the spring buying season kicks off. Mortgage applications fell nearly 11% last week from the previous week, according to the Mortgage Bankers Association. New Census Bureau data also show that sales of new single-family homes dropped nearly 18% in January from the previous month and are down 11.3% from January 2025.
The 30-year fixed mortgage rate has climbed since the conflict in the Middle East began in late February. The war has tightened global energy supplies, raising oil prices and injecting uncertainty into financial markets. The 10-year Treasury yield, which influences the direction of mortgage rates, was at 4.26% on Thursday afternoon, up from 3.96% before the war started.
The Fed decided this week to hold rates steady as it assesses the impact of the Iran war, while also signaling that it could move to lower rates at least once this year. However, some Wall Street analysts have cast doubt on that. EY-Parthenon chief economist Gregory Daco said in a report that it's "entirely plausible that the Fed won't deliver any rate cuts this year."
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