Mortgage Rates Hit 7-Month High

Inflation Is Starting to Pop Up Around the World

Global inflation is quietly making a comeback, and for homebuyers and homeowners interested in refinancing, it's worth paying attention to.

German consumer prices jumped to 2.8% year-over-year in March, the highest reading in more than a year, driven largely by the ongoing Iran war pushing energy costs higher. Spain saw inflation hit 3.3%, and the euro zone as a whole is expected to clock in at 2.6%, which is the highest since July 2024.

Money markets are already pricing in an ECB rate hike as soon as April, with up to three hikes expected over the course of the year.

Why does this matter for U.S. mortgage rates? Global inflation doesn't stay global for long. When energy prices rise overseas, they eventually flow through to American consumers too — in the form of higher gas prices, shipping costs, and goods prices. That puts upward pressure on U.S. inflation, which keeps the Fed cautious about cutting rates, and ultimately keeps mortgage rates elevated longer than buyers would like.

The bottom line: the Iran conflict is becoming a meaningful wildcard for anyone watching rates. If the war drags on and energy prices keep climbing, the window for rate cuts, here and abroad, could get smaller before it gets bigger.

Rate Cuts Aren't the Only Way Mortgage Rates Come Down

Most people think the only path to lower mortgage rates is the Fed cutting rates. But there's another way that doesn't get enough attention: the Fed's balance sheet.
During COVID, the Fed bought trillions in bonds to stabilize markets, ballooning its holdings to nearly $9 trillion. That number has come down to $6.7 trillion but it's still massive, and the size matters. When the Fed holds fewer bonds, it removes liquidity from the system, which can pull longer-term rates (like the 10-year Treasury that mortgage rates follow) lower over time.

Fed Governor Stephen Miran recently outlined a path to shrink those holdings by an additional $1–2 trillion over the coming years. Incoming Fed Chair Kevin Warsh has also expressed interest in doing exactly this. A shrinking balance sheet is a longer term play but it's still important for bringing rates down further, especially in light of recent events.