Middle East conflict raises fears of an inflation resurgence and more US economic instability
Concerns are mounting about the possible impact of the Middle East conflict on the global economy, with a leading economist claiming US consumers could be “hammered” by the crisis and the world’s top oil exporter also sounding a dire warning on the outlook.
Ten-year US Treasury yields, which strongly influence 30-year fixed mortgage rates, whipsawed on Tuesday amid confusion on whether an end to the war could be imminent.
Defense secretary Pete Hegseth said today would mark the “most intense” day of US strikes on Iran, a day after remarks by President Trump indicating the conflict would be “finished pretty quickly” boosted confidence in financial markets.
Experts fear knock-on effect from oil price volatility
Oil prices, which spiked at the weekend amid rising fears of a protracted conflict, slipped after those remarks by Trump.
But Moody’s chief economist Mark Zandi told CNBC the oil crisis could spill over into other parts of the economy, potentially sending broader prices and inflation spiraling higher.
“Consumers threaten to be hammered by the surge in oil prices, which has already lifted the cost of a gallon of gas by 50 cents,” Zandi said. “If oil prices stay near current levels of $100 per barrel, gasoline will be closing in on $4 a gallon by this time next week.
“Inflation will quickly accelerate, cutting into consumers’ purchasing power, and hitting consumer spending, GDP and jobs.”
Oil exporting giant Aramco, meanwhile, warned of “catastrophic consequences” for oil markets if the Strait of Hormuz, a key energy-shipping route, remains disrupted for a protracted period.
Reuters said the company’s chief executive officer Amin Nasser flagged that risk during its earnings call on Tuesday.
“There would be catastrophic consequences for the world’s oil markets and the longer the disruption goes on, the more drastic the consequences for the global economy,” he said.
Could the continuing chaos hit the housing market?
With US consumers already facing a much-publicized affordability crunch, an unexpected inflation flareup could potentially lower chances of a housing market rebound this year.
While Federal Reserve interest rate decisions don’t directly set mortgage rates, they usually impact bond yields – and resurgent inflation could push chances of a rate cut even further down the line.
Most economists don’t see the Fed shifting gears and moving into rate-cutting mode anytime soon, even after jobs data on Friday showed an unexpectedly weak labor market.
It remains to be seen how the growing unease impacts the US housing market – and whether homebuyers will stay on the sidelines if uncertainty lingers.
In February, existing-home sales unexpectedly ticked higher across the country, according to the National Association of Realtors (NAR), although that was likely spurred in part by a brief drop in average mortgage rates below 6%.
Rates climbed back above that level by the end of last week, according to government-sponsored enterprise (GSE) Freddie Mac, and experts including Mortgage Bankers Association (MBA) senior vice president and chief economist Mike Fratantoni aren’t expecting them to fall significantly lower anytime soon.
But for now, the conflict – which has entered its second week – doesn’t appear to have deterred a huge number of would-be homebuyers or convinced them that now isn’t the right time to buy.
It’s been largely business as usual, according to Atlantic Coast Mortgage EVP, area manager and senior loan officer Kristi Hardy, who told Mortgage Professional America that she hadn’t seen many customer queries about the conflict’s possible impact on mortgages.
“Surprisingly, nobody has asked me much about it,” she said. “There has been a little talk about people wanting to lock in before rates go up, but that’s about it.”
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