In the just-released FOMC statement, the Fed kept the Fed funds rate unchanged. This continues to hold Fed funds in a range of 3.50% to 3.75%. With the truce in the war against Iran continuing, but with the price of oil remaining elevated (just this morning the WTI contract was above $100/bbl at $103/bbl for the first time since April 13), this is not a surprise to the market.
This is the third consecutive FOMC meeting without a rate cut. It does come after the Warsh-nomination/Powell-lawsuit drama is thought to be over, opening the door in May for Warsh’s leadership going forward. There is not a refresh of dot plot projections today.
Even with Warsh at the helm, future monetary policy changes depend primarily on the cessation of the war. The longer the war/blockade/truce keeps the price of oil elevated and feeding inflation pressures, the greater the risk that the next rate change will be a hike, although that’s not in current market projections for the next few FOMC meetings.
As far as future rate cuts go, even thinking optimistically, the longer it takes to reach a lasting settlement to the war, the longer the post-war period will need to be for the Fed to see a reversal of this inflation pressure. And they will need to see that outcome to consider resuming rate cuts. That brings forward the future of the employment market and the resilience of the domestic economy as all of this works its way out.
The jobs market has largely continued its “no growth, but no contraction” mode. And economic indicators continue to show resilience in the face of the negative impact this war-induced inflation could bring.
But despite those positives, if signs emerge that unemployment begins accelerating while the price of oil remains elevated, near or above $100/barrel, markets will become concerned that the economy will eventually enter a stagflation environment. And the rising possibility of stagflation will make monetary policy changes under the Fed’s dual-mandate extremely difficult to make.
For today at least, borrowers will not be hearing a message that rates are on their way down anytime soon. For mortgage financing that will keep affordability front and center with purchase transaction activity and act to slow refinance volume.
What’s Next?
The designated end of Jerome Powell’s chairmanship on May 15 is looming and comes before the next FOMC meeting on June 17. The path seems clear for Kevin Warsh to take over the chairmanship, and he’s expected to move forward with a more dovish approach to monetary policy moves. Powell’s response to the question today of his plans to leave the chairmanship and whether he simultaneously plans to leave the Fed altogether come May 15 will likely result in a curve steepening trade if he indicates he is leaving (short-term rates fall relative to mortgage term rates). Or a bear flattener if he indicates he’s not (short-term rates rise relative to any rise in mortgage term rates).
The other main topic Powell will address at today’s press conference will be guidance on how the FOMC is planning to navigate the impact of geopolitical events and the upcoming economic data. A strong indication of where that stands is if the language that a rate cut will be the next policy move was removed from the statement today.
Fed funds rate cuts aren’t required for term mortgage rates to fall. And mortgage rates can fall without waiting to hear anything from the Fed or for the next FOMC meeting. But the Fed’s guidance does influence the borrowing public’s expectations — not to mention market participants (investors and trading desks). And while geopolitical events play out, the monthly cycle of inflation and job market data will inform the public’s expectations as they anticipate the Fed’s reaction.
For the immediate future, originators should continue to work refinance applications in preparation for rate dips, which could come quickly if the situation in the Middle East is resolved. For purchase business, using permanent and temporary buydowns to lock in a lower rate now will help meet borrowers’ financing needs.
What Do Borrowers Do Now?
Originators should explain to borrowers looking to finance the purchase of a home that — even as term rates have reversed some of the improvement from earlier in 2026, and despite increases in available inventory — there remains a systemic shortage of homes that will take years to address. Finding a home and financing that purchase now still starts the opportunity to build equity.
With the news cycle centered on the Middle East and oil prices, the current mortgage rate market may take months to resume a downward trend. Sellers can offer to pay for discount points, and Originators can offer temporary buydowns for borrowers who have a purchase transaction opportunity.
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