This Week In A Nutshell: We’re expecting rates to continue bouncing around this week, as the Middle East conflict continues into its third week with no clear off-ramp and markets anticipate the upcoming Fed meeting.
Upcoming Attractions
Markets will once again be focused on the evolving situation in the Middle East, particularly whether the White House can find a way to contain the disruption to energy markets. Fed Chair Jerome Powell’s second-to-last FOMC meeting is on Wednesday. They will hold rates steady, as markets expect. They will release new projections for rate cuts this year as well as inflation and the unemployment rate.
Given the Iran war, investors will be particularly interested to see if they continue to project one rate cut this year, and how they characterize the effect of recent energy price spikes on the inflation outlook. Finally, there will be February PPI (producer price index) data on Wednesday. PPI data, in conjunction with last week’s CPI data, make up almost the entirety of the PCE (personal consumption expenditures) measure of inflation, which is what the Fed tracks but is released later in the month.
Last Week’s Highlights
Rates continued to march up last week as investors worried about the inflation ramifications of the Iranian war. While February CPI data showed inflation steady, the report was largely ignored by markets since it was collected pre-Iran war.
Diving a Little Deeper
More than two weeks into the Iran war, mortgage rates have jumped from about 6% to 6.36% today after briefly touching 6.41% on Friday. Similarly, the underlying ten year Treasury yield has steadily climbed from just under 4% to 4.22% today after a high of 4.28% on Friday. What should we expect going forward and how will the conflict affect the Fed’s policy path?
The Fed’s playbook for an oil price shock is to “look through” the inflation effects in favor of the adverse effects on economic growth. We expect that Powell will get lots of questions on Wednesday at the Fed press conference on whether he expects the Fed to follow that path. Oil shocks are stagflationary for the economy, meaning both higher inflation and lower economic growth/higher unemployment. Goldman Sachs’ economists increased their year end forecast for headline inflation by 0.8 percentage points to 2.9%, but only increased their forecast for core inflation, which excludes energy prices and is what the Fed bases monetary policy on, by 0.2 percentage points to 2.4%. At the same time, they have lowered their forecast for GDP growth by 0.3 percentage points to 2.2% and increased their forecast for the unemployment rate by 0.1 percentage points to 4.6%.
If the Fed follows their playbook, then we should expect roughly the same number of rate cuts, but timing also matters. With greater uncertainty and as the economic impact of this war plays out, the Fed is almost certainly less likely to cut this summer. We see that reflected in the Fed Funds futures market whether expectations for a summer rate cut have all but disappeared these past couple of weeks.
In addition to the economic fundamentals and traditional monetary policy response, however, rates are moving on sentiment. Investors remember how the Russia/Ukraine war started brought about energy price shocks that then led to an outsized battle with inflation. The economic context back then was entirely different, however, with pandemic-era stimulus and supply chain disruptions all amplifying the effect of oil price volatility.
Redfin Housing Market Reports
Iran Conflict Stalls Big Purchases Like Homes and Cars For 1 in 4 Americans; Most Are Undeterred
- The majority of Americans say the military conflict with Iran isn’t impacting their plans to buy a home or car, per a new Redfin survey.
- The Iran conflict has a smaller impact than tariffs or concerns about job security on purchase plans. The impact of October’s government shutdown was similar.
1 in 5 Homeowners With a Mortgage Could Save Money By Refinancing–But Few Are Taking the Plunge
- The share of homeowners who are “in the money” for a refinance has hit its highest level in over four years as mortgage rates dip to around 6%.
- But less than 1 in 10 eligible homeowners have refinanced, even though they stand to save money.
Letting Home Sellers Test the Waters Before Listing Could Boost Housing Supply as Much as 12%
- Redfin estimates inventory could increase 6%-12% in markets where sellers have the flexibility to test out pricing strategies before listing.
- Allowing sellers to gauge early interest in their homes encourages more accurate pricing, which reduces the chances of homes lingering on the market and selling for below the list price.
The Oldest Americans Held More Real Estate Wealth Than Ever Before In 2025
- For the first time, the oldest Americans (70+) held a larger share of real estate wealth than middle-aged Americans (40-54).
- The 70+ age group is the only one that has experienced consistent gains in real estate wealth. Younger Americans, who have grappled with rising home prices and mortgage rates, have seen their portion of the real estate pie shrink or stay the same.
- 55-69 year olds hold the lion’s share of real estate wealth, despite losing share over the years.
