Senior economist discusses the path forward for the Fed
The last time the Federal Reserve announced a rate decision on March 18, the Iran War had been underway for about three weeks.
In a little less than three weeks, the central bank will meet again to announce another rate decision. The question is, will the conflict in Iran look different on April 29 than it looks now, and will that change the course of the Fed?
Right now, the region sits under a tenuous ceasefire that many believe is unlikely to last the full two weeks, let alone beyond that time.
Last year, the Fed was dealing with the uncertainty of new tariffs and how they might impact the economy. It forced the central bank to hold rates until the final three meetings of the year. The level of uncertainty seems higher this year with the conflict in the Middle East.
Sam Williamson (pictured top), senior economist at First American, said with geopolitical uncertainty continuing, don’t expect the Federal Reserve to change course, at least not at the next meeting. However, if there is a firmer, long-term resolution to the conflict, it could bring the inflation picture into focus for the Fed.
“Recent geopolitical developments are unlikely to push the Fed out of its current holding pattern at this month’s meeting,” Williamson told Mortgage Professional America. “However, a clearer path toward conflict resolution could reduce uncertainty and lower the risk that energy price volatility complicates the inflation outlook. For now, the Fed remains in wait-and-see mode, with the timing of future cuts still driven primarily by core inflation and labor market trends.”
Rate slide could continue
Wednesday was a day of welcome relief for mortgage customers and brokers as the 10-year Treasury rate, which is most closely tied to mortgage rates, fell considerably throughout the day. While rates didn’t drop a ton, they did slide below 6.5% for a 30-year fixed conventional mortgage.
What happens with rates from here will largely depend on how the market views the ceasefire and the likelihood of a more permanent peace in the Middle East. The market will also be keeping an eye on the Strait of Hormuz and whether it is completely reopened. This would ease oil prices and lower inflation.
Williamson said if the markets can believe in the ceasefire and a longer-lasting peace, rates could continue to drop.
“Rates could drift lower as markets gain confidence that the broader conflict will remain contained, easing the risk of energy-driven inflation pressures and allowing some of the geopolitical risk premium to unwind,” he said.
As far as long-term rate relief, that is going to require a more permanent, stable resolution to the conflict. With oil prices still up nearly $40 per barrel from January, the market will want to see those prices return closer to where they were at the beginning of the year before it believes in improving conditions.
“Investors are unlikely to fully price out this risk until conditions stabilize, suggesting that any further decline in rates will be gradual,” Williamson said. “Even a calmer rate environment, however, could help draw some spring buyers back off the sidelines after the recent run-up in rates.”
Elevated rates still hurting demand
While rates are starting to slide, many buyers continue to find conditions too uncertain to make a move in the market.
Yesterday, the Mortgage Bankers Association (MBA) released its weekly application survey. For the fourth week in a row, applications fell. While it was only a 0.8% drop, the pace of applications reached its lowest level since December.
Joel Kan, MBA vice president and deputy chief economist, said the higher rates were keeping people away.
“Higher mortgage rates and continued economic uncertainty weighed down on mortgage applications again last week,” Kan said. “While mortgage rates saw a slight reprieve, with the 30-year fixed rate decreasing to 6.51%, many potential refinance borrowers have been frozen out by the sharp increase over the past month. The pace of refinance applications was at its lowest level since December 2025.”
Bob Broeksmit, MBA president and CEO, said despite falling applications and economic uncertainty, increasing inventory in some markets should set up for a bounce-back if rates continue to slide.
“Mortgage applications declined for the fourth consecutive week as ongoing economic uncertainty and higher mortgage rates continue to weigh on demand,” Broeksmit said. “Both purchase and refinance activity remain subdued, with purchase applications falling on an annual basis for the first time since January 2025. Meanwhile, increasing inventory in many markets is easing supply constraints, and demand should rebound if mortgage rates decline from recent highs.”
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