Global uncertainty likely to lead Fed into holding pattern
Financial markets shifted to a later easing timeline, with traders now betting the Federal Reserve will not deliver its next rate cut until September – and a second move only in December – even as New York Fed president John Williams reiterated that reductions stayed on the table if inflation eased.
Investors moved quickly to price out earlier action as the conflict involving Iran fed concerns about renewed energy‑driven inflation and pushed up yields across the curve.
For mortgage originators, the message from futures pricing is that the policy rate is likely to sit near current levels through the US spring and summer selling seasons, with any meaningful decline in 30‑year mortgage rates more likely to arrive alongside a late‑year cut cycle rather than in time for the peak purchase window.
US Treasury yields surged higher at the start of the week as an oil-price spike and renewed conflict in the Middle East outweighed the market’s usual rush into safe assets, raising fresh questions for mortgage lenders and borrowers.https://t.co/27p6BKz7B1
— Mortgage Professional America Magazine (@MPAMagazineUS) March 2, 2026
Against that backdrop, Williams argued that the central bank’s current stance already struck the right balance between cooling prices and protecting growth.
“Monetary policy is currently well positioned to support the stabilization of the labor market and return inflation to our 2% goal,” he said in prepared remarks to America’s Credit Unions in Washington.
He added that “if inflation follows the path I expect, further reductions in the federal funds rate will eventually be warranted to prevent monetary policy from inadvertently becoming more restrictive.”
Minneapolis Fed president Neel Kashkari said on Tuesday that the market was in a pretty good place until the Iran conflict started.
"The question is how long is this going to last, how bad is it going to get," Kashkari said.
Williams said he expects the economy to remain on “solid footing,” with real GDP growth of about 2.5% this year, supported by fiscal stimulus, “favorable financial conditions, and robust investments in artificial intelligence.”
He described a “low‑hire, low‑fire” labor market that stabilizes, and said he expects the unemployment rate to “edge down over the course of this year and next year.”
Tariffs, he said, have been “a notable driver of inflation,” but he expects that influence to fade, allowing inflation, as measured by the Fed’s preferred PCE gauge, to ease to around 2.5% this year and return to 2% in 2027.
Williams did not address the Iran conflict in his text, even as markets reacted to rising geopolitical risk premia in oil. Instead, he emphasized that there are “no signs of significant second‑round effects from tariffs,” and that inflation expectations remain well anchored.
Meanwhile, Federal Reserve governor Stephen Miran previously said that four quarter‑point cuts “are appropriate” for 2026 and that he would “rather get them sooner than later,” pointing to lingering risks for workers even after a surprisingly strong January payrolls report.
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