Fed holds rates amid Iran oil shock; hike risk rising
Key Questions
Why did the Fed decide to hold interest rates steady?
The Federal Reserve maintained rates amid an Iran oil shock pushing gas prices above $4.50, low consumer sentiment, April CPI at 3.8% year-over-year, and only 115k jobs added. Thirty-year yields reached 5%, with futures markets pricing in a possible March hike.
How are mortgage rates responding to the Fed's decision?
Mortgage rates have climbed to their highest level in nearly a year, contributing to a 5.4% drop in pending home sales in June due to reduced affordability. A modest dip occurred on July 20 but is not expected to significantly ease borrowing costs.
What is the outlook for future Fed rate changes?
TD Securities anticipates the Fed will keep rates unchanged through 2026 given persistent inflation above target. Markets currently price in a potential hike as early as March following confirmation of May CPI and PPI data.
What economic data points are influencing current policy?
Key factors include April's 3.8% CPI reading, modest job growth of 115k, and 30-year Treasury yields hitting 5%. The stalled Warsh nomination adds uncertainty to the policy outlook.
How might this affect the housing market in the near term?
Elevated mortgage rates and record home prices are pressuring affordability, leading to lower contract signings. Pending home sales fell notably in June as borrowing costs remain high.
Fed holds rates amid Iran oil shock/gas $4.50+/sentiment low; Apr CPI 3.8%YoY/jobs +115k; 30Y yields hit 5%; futures price March hike. TD Securities sees on-hold through 2026 with hike risk; markets price 62% chance September hike. Warsh nomination stalled; Powell term end. Mortgage rates near year high; pending home sales -5.4% June.