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While the Iran War continues to loom in its current stalemate reaching the six month mark, economists are back focusing on the U.S.'s current economic climate as it relates to mortgages. While the Iran War initially spiked mortgage rates, the average 30 year mortgage rate has held steady now, hovering around 6.75%, plus or minus 0.10% on any given day. The main question now for the Fed is – will they raise the Federal Funds rate this year?
The Fed committee members are divided - with some of them wanting to raise the Fed funds rate to cool inflation, and the other faction wanting to keep the Fed funds rate where it is since they believe borrowing costs are high enough to cool inflation without possibly injuring a fragile job market. But who is right?
It is no secret that the Fed has a target of a 2% inflation rate. Luckily for us, Chairman Kevin Warsh is an experienced economist and understands that the PCE (Personal Consumption Expenditures) report that measures inflation is the not the end story. Current PCE shows inflation at 3.7% year over year in July 2026. However, Warsh and certain Fed members are measuring Core PCE - which strips out volatile food and energy costs, such as the rising cost of oil. The Core PCE reading is actually at 2.3% which is fairly close to the target number of 2%.
At the last Fed meeting, 9 of the 12 members voted to hold rates steady. The general consensus at the moment is that the Fed will keep the Fed funds rate steady at the September meeting. However, there is a growing expectation that they could hike rates in December if inflation moves further away from their target.
