The Federal Reserve held interest rates steady yesterday as escalating tensions in the Middle East continue to drive up oil prices and cloud the global economic outlook.
The decision reflects growing concern that the conflict with Iran is creating a dual threat to inflation and growth, with policymakers signalling caution as energy markets tighten and points to a hold in the UK later today.
Oil supply disruption has intensified after the closure of the Strait of Hormuz, a key global shipping route, contributing to a sharp rise in crude prices. Futures contracts have climbed above $110 per barrel, increasing inflationary pressure across major economies.
The move by the Fed comes amid wider uncertainty for central banks, including the Bank of England, as policymakers balance persistent inflation against weakening economic activity.
CONSUMER PRICES
Higher energy costs are expected to feed through into consumer prices in the coming months, while also squeezing household incomes and reducing discretionary spending. This combination is likely to weigh on housing demand and affordability, particularly in mortgage-dependent markets such as the UK.
Recent data has already shown rising mortgage rates feeding into higher borrowing costs, with swap rates reacting to global inflation expectations driven in part by energy price volatility.
HIGHER MORTGAGE RATES
The backdrop reinforces a period of continued uncertainty. Elevated mortgage rates are already impacting buyer demand and transaction volumes, while affordability pressures are pushing more households into the rental sector.
Isabel Albarran (main picture, inset), Investment Officer at TrinityBridge, says: “It was no surprise that the Fed opted to leave rates unchanged, given the dual risks that the conflict with Iran poses to its mandate.
“Higher energy prices are already pushing up inflation, and this will continue. At the same time, the US consumer is highly exposed to energy prices, meaning consumption and growth are likely to take a hit.”
While the Bank of England is likely to maintain rates today the evolving situation is expected to keep global interest rate expectations volatile, with potential knock-on effects for UK mortgage pricing, investor sentiment and housing market activity in the months ahead.
