"As the fourth-largest oil producer in OPEC (the Organization of the Petroleum Exporting Countries), Iran's instability means oil price instability. The Dow Jones Industrial Average fell nearly 800 points on Thursday as U.S. oil prices surged, according to the Wall Street Journal. Rising oil costs have stoked investor concerns about inflation."
"The further that inflation moves above the Federal Reserve's 2% target rate, the less likely central bankers are to lower overnight borrowing rates. This has an indirect effect on mortgage rates; when the federal funds rate is lowered, it's cheaper for banks to borrow from one another to fund mortgages, and those savings can be passed along to borrowers."
"Beth M. Hammack, president of the Cleveland Federal Reserve and voting member of the Federal Open Market Committee, told the New York Times this week that she expects the Fed to hold rates steady "for quite some time" as central bankers wait for concrete data about the potential effects of the Iranian conflict on inflation."
Thirty-year fixed mortgage rates increased seven basis points to 5.94% in the week ending March 6, driven by geopolitical tensions in the Middle East. Iran's status as a major OPEC oil producer means regional instability directly impacts global oil prices and inflation concerns. Rising oil costs triggered stock market declines and heightened investor worries about inflation exceeding the Federal Reserve's 2% target. The Federal Reserve is likely to maintain steady rates for an extended period while monitoring inflation data. Higher inflation reduces the probability of rate cuts, which indirectly affects mortgage rates since lower federal funds rates enable banks to offer cheaper mortgages to borrowers.
Read at SFGATE
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