Hawkish central bank statement raises chances of higher rates this year
The Federal Reserve held interest rates steady at its June meeting but signaled a more hawkish outlook for the rest of 2026, with its updated projections pointing to at least one rate hike ahead – while new chair Kevin Warsh declined to submit his own forecast, breaking with tradition.
Nine of the 18 officials who participated in the Summary of Economic Projections (SEP) indicated that the federal funds rate would finish 2026 above its current target range of 3.5% to 3.75%, with eight expecting no change and one projecting a cut.
The median estimate for that rate at year-end now stands at 3.8%, up from 3.4% in the March projections. Warsh, meanwhile, confirmed at his first ever post-meeting press conference that he had withheld his own submission.
“It’s been the practice of this committee for participants to submit these projections, and I have encouraged my colleagues to continue to do so,” Warsh said. “I, however, have refrained from offering any projections of my own, consistent with my long-held views on the SEP [Summary of Economic Projections], at least as currently structured.”
Mortgage industry greets Fed call with a shrug
The decision came as little surprise to mortgage professionals tracking the Fed statement, particularly with geopolitical factors continuing to weigh on the central bank’s thinking despite the emergence of positive news on the war between the US and Iran this week.
“I think they’re more cautious about what’s going to happen with the Iran-US oil situation,” Fif Ghobadian, senior vice president of mortgage lending at OriginPoint in San Francisco, told Mortgage Professional America.
Nor was Warsh’s decision to withhold his own views on the dot plot unexpected. “We were expecting no change, and the fact that they’re going to be a little less transparent about what’s happening with their decisions was also kind of expected. So there were really no surprises.”
Mortgage rates briefly dropped into the high fives in January after Trump directed Fannie Mae and Freddie Mac to buy $200 billion in mortgage bonds, before rebounding into the low sixes and ultimately soaring again after the Iran war broke out.
Ghobadian suggested the Fed could help push mortgage rates lower by moving away from large-scale MBS purchases itself, a direction she believes Warsh is inclined to take.
“Kevin Warsh is not a big believer of quantitative easing, so [they’ll] want to lighten the load on the balance sheet,” she said. “Buying back mortgage-backed securities at the rate the Fed was doing was kind of flooding the bond market. So that could also potentially be an improvement for us in terms of rates.”
Warsh stays tight-lipped about Trump talks
Trump was a longstanding critic of Warsh’s predecessor Jerome Powell, frequently blasting the former Fed chair’s approach to rates and often bringing up the idea of attempting to fire him.
To date, Trump has been much less demanding towards Warsh, suggesting that he wants to see an independent Fed and wouldn’t interfere with the central bank’s future decisions on rates.
On Wednesday, Warsh refused to be drawn on whether he had spoken with Trump since his swearing-in weeks ago. “On the President, I don’t have anything for you,” he said, although he confirmed that the longstanding tradition of weekly meetings between the Fed chair and Treasury secretary – currently Scott Bessent – has continued.
There are still plenty of twists and turns ahead between now and the end of the year for the Fed, particularly if expectations harden around a potential interest rate hike.
That would likely put further pressure on affordability at a time when the housing market is already grappling with elevated borrowing costs. Ghobadian, though, isn’t looking far past the outcome of the US-Iran talks – and says an agreement could be a decisive moment for the rate outlook.
“I think the biggest surprise with rates is going to be once a treaty is signed between Iran and the US,” she said.
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.
