Anyone hoping to get cheaper financing in a few months may find themselves waiting.
But the question of how long this wait will last is now open.
Yesterday, members of the Federal Reserve’s rate-setting committee indicated that they expected high inflation to persist in the near term — and therefore project that the central bank’s key interest rate could increase by the end of this summer.
This rate, known as the federal funds rate, influences other borrowing rates throughout the economy, including credit cards and auto loans.
At the same time, new Fed Chairman Kevin Warsh indicated that rising rates are weighing on activity in the housing and real estate markets. He described the impact of current monetary policy as “uneven.”
As oil prices – a key driver of inflation – fall as the war with Iran eases, Warsh may be able to avoid a rate hike this year – and may even meet President Donald Trump’s goal of lowering interest rates.
“If the inflation data improves and improves, rates could be a little lower and be less restrictive,” said Logan Mohtashami, senior analyst at real estate publication HousingWire.
The bond market already has a sense of how it might evolve over time: While borrowing costs for short-term U.S. Treasuries have jumped over the past 24 hours, costs for longer-term U.S. Treasuries are falling.
In other words, any increase in borrowing costs could potentially prove short-lived.
A rise in short-term rates would represent a reversal from recent years.
The last time the Fed raised its key rate was in July 2023, in response to fueled inflation during the Covid 19 pandemic, as consumers found themselves flush with disposable cash.
However, over the past three years, rates have gradually declined. After peaking at 7.8% in the fall of 2023, the average 30-year mortgage rate had fallen to 5.98% by the end of February.
But the war in Iran caused energy prices to spike — and along with a seemingly stabilized U.S. economy and job market, mortgage rates began to rise again. On Thursday, they stood at 6.47%.
Auto loan rates have seen a similar trajectory, peaking in August 2024 at around 8.6%, before falling to around 7.4% in February. Since then, it has not declined.
Interest rates on credit cards, meanwhile, have been stuck above 20% for three years. In February, the most recent month measured by Federal Reserve data, they stood at 21%.
Overall, borrowing costs, including the Fed’s policy rate, respond to inflation. But for now, the inflation outlook is uncertain.
Even as the war with Iran draws to a close and oil prices reverse course, tariffs and spending on artificial intelligence continue to drive up price growth, said Krishna Guha, chief economic officer at financial group Evercore ISI.
Inflation “still needs to show more decisive evidence of a decline” to avoid a rate hike, Guha said.
The Fed’s inflation projections, released Wednesday, show its main inflation gauge will likely stay above 3% for the rest of the year.
But if the trajectory of inflation moves in the right direction – lower – that will mean a greater likelihood that the Fed can cut rates.
“Right now we have big question marks on inflation,” said Adam Turnquist, chief technical analyst at asset management group LPL Financial. “This is shaping up to be a journey strewn with pitfalls.”
In his first news conference as president Wednesday, Warsh said the Fed is committed to maintaining price stability, which means keeping the inflation rate in check.
But he clearly refused to commit to raising interest rates.
“The good news is we will meet in six weeks,” he said.