Mortgage rates hit highest level in a year amid inflation fears

Mortgage rates in the United States climbed to their highest point in a year this past Thursday, reflecting growing concerns about inflation. The average rate for a conventional 30-year mortgage reached 6.66% for the week ending July 30, a level not seen since July of the previous year, according to Freddie Mac data.

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While it's unclear if or when the central bankers might raise the funds rate, there's plenty of concern that inflation's running unchecked.

Renewed geopolitical tensions in the Middle East and the Federal Reserve's decision to keep its benchmark interest rate unchanged this week have intensified inflation fears. While the Fed held rates steady, three members of the rate-setting panel reportedly voted for an increase, signaling potential future hikes. These developments have pushed Treasury yields higher, directly impacting mortgage rates.

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Between that and Iran, we're seeing Treasury yields surge, and mortgage rates are being dragged up along with them.

Investors are closely monitoring the Federal Reserve's actions and communications. Despite recent government data indicating a slowdown in inflation for June, the rate remains above the central bank's 2% target. Deutsche Bank forecasts two rate hikes totaling 0.50 percentage points by the end of the year. Additionally, disruptions in oil and fuel prices due to Middle East conflict could further accelerate inflation, keeping upward pressure on mortgage rates.

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Because oil remains the primary channel through which the Iran conflict feeds inflation, a de-escalation and a reopening of the Strait of Hormuz remain the clearest path back toward lower rates.