Oil shock and conflict risks kept policymakers cautious on cuts – and mortgage pros watching
Former Treasury secretary Janet Yellen warned the widening conflict in Iran has made Federal Reserve officials “even more on hold” on interest rate cuts.
The latest flare‑up pushed oil sharply higher and snarled shipping through the Strait of Hormuz, raising fresh questions about how long inflation would stay above target and how much relief mortgage lenders could expect on funding costs in 2026.
Fed weighs oil, tariffs and credibility
“I think the recent Iran situation puts the Fed even more on hold, more reluctant to cut rates than they were before this happened,” Yellen said in a video address to S&P Global’s TPM26 conference in Long Beach, California.
She added that inflation has been running about a percentage point above the central bank’s goal even before the conflict and that “President Donald Trump’s tariffs have contributed around half a percentage point of the current 3% pace.”
Before the shock, Fed officials already signaled they are inching toward a neutral stance after several 2025 cuts, with policymakers wanting “more data to see which is the bigger force. Is it inflation or is it the labor market?” Minneapolis Fed president Neel Kashkari previously said.
Oil shock met an uneasy, but resilient, economy
With tankers hit and traffic through Hormuz throttled, benchmark crude briefly jumped from around $70 to nearly $80 a barrel, echoing earlier conflicts that fed US inflation and roiled bond markets.
“A pillar of our 2026 outlook was the observed ‘fading of caution’ regarding US policy… This nascent recovery is now at risk. A military war, layered on top of the ongoing U.S. 'war on trade,' could reignite concerns over global stability,” JPMorgan economist Joseph Lupton said over the weekend.
Natixis economist Christopher Hodge said “the tail risks have certainly increased,” sketching outcomes from a quick resolution to a drawn‑out conflict that “upends global supply chains.”
Jason Thomas of Carlyle said he focused on “a base case probability of 70% or higher for a protracted asymmetric campaign, including cyber activity, terrorism, and proxy forces,” warning that disruption could extend well beyond headline chokepoints.
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
What it means for mortgage brokers
For mortgage originators, the message from markets and policymakers points to a higher‑for‑longer rate backdrop and wider trading ranges, rather than a straight line toward cheaper money.
Earlier bouts of Middle East tension have not stopped activity altogether – mortgage application volume even ticked higher “as average rates edged slightly higher and global uncertainty persisted due to ongoing conflict in the Middle East,” Mortgage Bankers Association data showed, with FHA refinances supporting demand.
Still, the mix of stubborn inflation, conflict‑driven energy costs and political pressure on the Fed left little room for complacency on secondary market liquidity or pipeline hedging.
Yet Yellen also stressed that, despite serious risks, “the US economy is pretty healthy right now, and I’m pretty optimistic about the economic outlook.”
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