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Mortgage rates ended last week on an optimistic note, as markets were encouraged by news of peace talks between Washington and Tehran.
The conversation this week is much more dour. On Wednesday, the Senate blocked efforts to end the war, the seventh such measure put forth by Democrats. Tuesday saw the release of the April consumer price index (CPI), which showed that inflation accelerated at its fastest pace since May 2023. This spike was driven largely by increased energy costs as a result of the conflict in Iran.
All of this Bad News (from the bond market’s perspective) has mortgage rates inching upward. The average rate on a 30-year fixed-rate mortgage rose one basis point to 6.25% APR in the week ending May 14, according to rates provided to NerdWallet by Zillow. (A basis point is one one-hundredth of a percentage point.) We calculate our weekly average using daily APRs recorded over the last five business days.
Even if the war were to end tomorrow, its effect on the economy — and on borrowers’ ability to buy a home — could linger.
What will the Fed do about it?
Inflation and borrowing rates have a push-pull relationship. When inflation gets too high, the Federal Reserve will sometimes raise short-term borrowing rates (which usually causes mortgage rates to rise) to ease demand and force prices back down.
Except … this can be an unpopular move. There’s a sort of “when it rains, it pours” sentiment; consumers might think, “Great, gas and groceries are already skyrocketing, and now interest rates are going up even more.”
In theory, the Fed is supposed to be an apolitical guiding hand for the nation’s monetary policy. However, President Trump has used his office to wage a long intimidation campaign against Fed chair Jerome Powell in an effort to direct central bankers toward more politically popular results. This campaign included a criminal investigation by the Department of Justice into Powell’s statements about a renovation of the Fed’s headquarters.
“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” said Powell in January. His term expires on May 15.
While Powell remained steadfast in maintaining the independence of his role, some have questioned whether Trump’s pick to replace Powell, Kevin Warsh, will break this mold.
The Senate confirmed Warsh’s nomination as the new chair of the Federal Reserve on Wednesday. Last year, Warsh publicly aligned himself with the president’s goal of slashing rates, and Trump has also openly stated that he’d be disappointed if Warsh didn’t cut rates right away.
During Senate confirmation hearings, Warsh was asked if he would be a “human sock puppet” for the president’s bidding, which the new Fed chair denied.
Rising inflation will put Warsh’s leadership to the test and signal what this new era of the Fed could look like. A rate cut could be a very tough sell to the Fed governors in this kind of environment. In fact, analysts are overwhelmingly predicting that central bankers will vote to hold rates steady at their June meeting, with odds of rate hikes looking far more likely than rate cuts throughout the back half of the year.
If Warsh’s main goal is to lower interest rates, it’ll be an uphill battle so long as the Iran war continues to push fuel prices up. If central bankers speak publicly about opposing views, mortgage rates could jump around in response to the opinions of the day.
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How inflation impacts home affordability
Of course, mortgage rates are just one part of the picture. Inflation forces consumers to devote a greater share of their wallet to everyday essentials, creating fewer opportunities to save for a down payment or to tackle a monthly mortgage bill.
“Current inflation is hitting American consumers where it hurts the most. Gas and grocery prices are largely unavoidable for the majority of households, so when prices are rapidly rising in these categories, most of us can’t help but notice,” says Elizabeth Renter, NerdWallet senior economist.
“We know that the first impacts of an oil price shock can be temporary — prices rise and stay there, and don’t continue rising. However, it takes time for all of the downstream impacts to bleed through the economy. And when the end of the conflict causing the shock has no end in sight, it becomes less clear how long we’ll all be facing higher prices.”
Home prices are uneven across the country, according to April’s Existing-Home Sales Report from the National Association of Realtors. While sale prices fell slightly year-over-year in the West, buyers in the Northeast saw sharp price increases of 4.8% from April 2025.
What to do if you want to buy a home now
It’s impossible to predict what mortgage rates might do long-term, but they’re more likely to rise when lenders believe that a Fed hike is on the horizon. Consider paying for points to lower your interest rate if you can afford them, and if you plan to stay in your home long enough to recoup the upfront cost.
You can also try to get your financial profile in good shape before you apply, so that you can get the lowest possible rate offer. This includes paying down your existing debts (and not taking on new ones), reviewing your credit report for errors, and making sure your bills are paid on time.
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