Iran’s war is doing something policymakers dread: pushing up borrowing costs just as households were still getting used to pricier credit. Mortgage rates climbed for five straight weeks after the conflict began, and even after this week’s small pullback, the average 30-year fixed rate sat at 6.37 percent, far above the 5.98 percent level seen in late February. For a buyer financing a $500,000 home, that gap adds more than $36,000 over a 30-year loan.
The pressure runs through Treasury markets. Mortgage rates tend to follow the 10-year Treasury yield, and Reuters reported that the yield jumped as investors digested higher oil prices and inflation worries, with the benchmark rising from below 4 percent in late February to as high as 4.48 percent in March. That reverberates beyond housing: auto loans track shorter-term borrowing costs, while credit card rates, already above 19 percent on average, are unlikely to ease if the Federal Reserve stays on hold.
The labor market is still holding together, but with less slack than the surface numbers suggest. Weekly jobless claims rose moderately to 219,000, showing no sign of labor-market deterioration, even as the labor-force participation rate slipped to 61.9 percent, the lowest since 1977 outside the pandemic. That drop has been driven by aging demographics and the Trump administration’s immigration crackdown, which leaves employers with a smaller pool of workers just as uncertainty from trade policy and the war keeps hiring cautious.
Inflation is the other half of the trap. Reuters said economists expect March consumer prices to accelerate, while the Fed’s March minutes showed policymakers were already fretting that a prolonged Middle East conflict could keep energy prices elevated and bleed into core inflation. If that pattern holds, the central bank gets a narrower path: hold rates steady and risk letting inflation linger, or tighten further into a fragile economy. Either way, households face the bill first.
