Fed signals caution after Iran war
- Neel Kashkari and Beth Hammack said this week the Fed should stop hinting that its next move is a rate cut. - Kashkari warned a prolonged Strait of Hormuz disruption could even force rates higher, while Freddie Mac’s 30-year mortgage average sits at 6.37%. - That matters because March’s Fed projections still pointed to one 2026 cut, but officials now sound much less sure.
The Fed is back in wait-and-see mode — and the Iran war is a big reason why. What changed this week is not the policy rate itself. It’s the tone. Several Fed officials said the old assumption that the next move would probably be a cut no longer fits a world where oil prices, shipping routes, and inflation risks can all jump at once. (bloomberg.com) ### What did the Fed actually do? At its April 29 meeting, the Fed kept the federal funds target range at 3.5% to 3.75%. But the interesting part was the split. Governor Stephen Miran wanted a quarter-point cut, while Beth Hammack, Neel Kashkari, and Lorie Log(bloomberg.com) the committee is no longer telling one clean story about where rates go next. (federalreserve.gov) ### Why are officials suddenly more cautious? Because war in the Middle East creates two opposite risks at the same time. It can slow growth — which usually argues for cuts. But it can also push up oil and shipping costs — which argues for patience, or even tighter policy if inflation flares. (federalreserve.gov)f Hormuz stayed closed for an extended period, the next move might need to be up, not down. (bloomberg.com) ### Why does the Strait of Hormuz matter so much? Because it is one of the world’s key energy chokepoints. If oil and gas shipments through it are disrupted for long, U.S. inflation can get hit through gasoline, transport, and broader input costs. That is the (bloomberg.com)nd one on the gas. The economy slows, but inflation does not cool the way the Fed wants. (bloomberg.com) ### What did Hammack add? Hammack’s point was less dramatic but just as important. She said the Fed’s post-meeting statement was “a little bit misleading” because it still signaled that the next move was more likely down. Her argument is basically that the Fed should stop pretending it has that kind of visibility right now. If the outlook is genuinely murky, the statement should say so. (bloomberg.com) ### So is inflation actually getting worse? Short term, the pressure has ticked up. The New York Fed’s April 2026 consumer survey showed one-year inflation expectations rising to 3.6% from 3.4%. But the more reassuring part is that three-year expectations stayed at (bloomberg.com)anchored, which gives the Fed room to be patient instead of panicking. (newyorkfed.org) ### What does this mean for mortgages? It means hopes for a fast slide toward 5% look weaker. Mortgage rates do not move one-for-one with the Fed, but they do care about inflation and bond yields. Freddie Mac’s latest weekly survey put the average 30-year fixed mortgage at 6.37% on May 7. If investors think (newyorkfed.org)hout another Fed hike. (finance.yahoo.com) ### What changed from March? In March, the Fed’s median projection still showed one rate cut in 2026, with the year-end federal funds rate at 3.4%. But even then the committee was drifting hawkish under the surface, with more officials penciling in fewer cuts than before. The wa(finance.yahoo.com)federalreserve.gov) ### Bottom line? The Fed has not decided that hikes are coming. But it is clearly trying to walk back the idea that cuts are the default. For borrowers, that means higher-for-longer is still the safer assumption. (bloomberg.com)
