New poll indicates central bank decisionmakers will hold rates steady as inflation fears persist
Economists increasingly expect the Federal Reserve to keep interest rate moves on ice through 2026 as the Iran war and inflation fears continue to weigh against the economic outlook.
With the central bank’s next rate decision set to arrive next week, a new Reuters poll showed a large majority of economists believe the Fed will opt to leave its key interest rate unchanged for the rest of the year.
The outbreak of the US-Israel-Iran war at the end of February sent oil prices sharply higher, stoking inflation fears and suddenly lowering the chance of 2026 Fed rate cuts. A blockbuster May jobs report also suggested a resilient economy and seemed to lower the chances of a rate reduction even further.
Seventy-two (72) of 102 economists polled by Reuters this week believe the Fed will hold rates steady for the rest of the year, marking a growing consensus compared with earlier months when fewer than half of surveyed experts forecast a hold.
Mortgage rates don’t rise and fall in tandem with the Fed’s trendsetting rate, but Fed decisions are influential in shaping the direction of bond yields – which directly influence the 30-year fixed mortgage rate.
While mortgage rates briefly slipped into the fives earlier this year, they’ve surged to the mid-six-percent range since the beginning of the Iran war – and mortgage industry expectations of lower rates have faded with no end to that conflict in sight.
Industry commentators say rates in the 6-7% range will be the norm for the rest of the year, with little to no chance of an imminent drop back into the fives.
While President Trump has frequently criticized the Fed for not lowering rates earlier, analysts see little chance of a June cut under Kevin Warsh, who recently succeeded Jerome Powell as chair of the central bank.
The Reuters poll showed that no economists are predicting a cut at next week’s meeting, while a handful are expecting a hike in the months ahead.
While it seems increasingly likely that the Fed will keep rates unchanged next week, much attention will center around the so-called “dot plot” – which illustrates Fed decisionmakers’ expectations for coming meetings – and any statements made by Warsh in the wake of the announcement.
The inflation outlook will be top of mind for the Federal Open Market Committee as it weighs its approach to rates in the months ahead.
Last month, the consumer price index (CPI) jumped to 3.8%, its highest annual reading since May 2023, as surging oil prices continued to worsen the overall inflation picture.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
