Fed holds rates steady, but inflation could stymie spring sales 

With inflation expected to rise, the Federal Reserve is not inclined to cut short-term interest rates anytime soon — but it's not likely to raise rates either.

The Fed announced on March 18 that it will keep short-term interest rates in the 3.5% to 3.75% range. Only one Fed Governor — Stephen Miran, a White House economic advisor who joined the board in September — dissented, a sign that the committee is fairly aligned and wants to see what impact the Iran war will have on consumer prices.

Inflation forecast revised upward

According to the Fed's economic projections, prices will increase 2.7% this year, up from a December forecast of 2.4% and well above its 2% target. That forecast suggests the Fed may only make one interest rate cut in 2026, and it would likely happen later in the year.

Not helping matters was the latest inflation report, which showed wholesale prices rising more than expected in February. The producer price index was up 3.4% compared to a year ago, leading to a drop in stock prices of more than 1% for the day.

Rate hike, stagflation unlikely

During the post-announcement press conference, Fed Chairman Jerome Powell was asked several questions about the effect of surging oil prices on inflation — and whether the Fed could decide to raise interest rates later this year. 

While Powell avoided discussing hypothetical situations, saying it was too early to tell if the jump in oil prices was more than a one-time shock to the economy, he acknowledged that the committee talked about the possibility of a rate hike — but made it clear that, for now, they had no plans to do so.

Powell was also asked about the risk of stagflation, where inflation is rising and the job market is weakening, but he didn't think it applied to current economic conditions.

"You know, when we use the term stagflation, I always have to point out that that was a 1970s term at a time when unemployment was in double figures, inflation was really high and the misery index was super high," Powell said. "And that's not the case now. I would reserve the term stagflation for a much more serious set of circumstances."

What this means for real estate

Since the Fed's decision to maintain short-term interest rates was widely expected, any changes in mortgage rates are more likely to be influenced by what happens in the Middle East, according to Lisa Sturtevant, chief economist at Bright MLS. 

"If the conflict with Iran is short-lived, mortgage rates could move lower again, even if the Fed holds the federal funds rate steady at its next meeting," Sturtevant said. "However, if the conflict is prolonged or expands, the result could be higher inflation and higher mortgage rates. In that case, we may be looking not just at a delay in the spring homebuying season, but at a broader shift in the trajectory of a housing market that had been expected to rebound in 2026."

Still, many buyers are in a better position than they were a year ago, noted Danielle Hale, chief economist at Realtor.com. After dipping below 6% in late February, 30-year mortgage rates have been on the rise, but "despite the uptick, mortgage rates are likely to continue to hover below year-ago levels, improving the purchasing power of buyers relative to last spring," Hale said.