Fed Rate Decision March 2026: Mortgage Interest Rates

• No change
• Federal funds target range: 3.50% - 3.75%

In an effort to balance softening employment with rising inflation and geopolitical tensions, the Federal Reserve elected to keep rates steady, as expected. 

Mortgage rates had already come off long-term lows since the start of the war in Iran due to the effect of rising oil prices on Treasury yields and heightened economic uncertainty. A hotter-than-expected Producer Price Index report released March 18 reinforced inflation concerns and sent Treasury yields higher before the announcement — and by extension mortgage rates — as markets scaled back expectations for near-term Fed rate cuts.

When asked about the conditions that would merit a rate cut, Federal Reserve Chairman Jerome Powell said the key would be the state of inflation. Fed governors expect that inflation, including inflation related to tariffs, will have eased by mid-year.

"The forecast is that we'll be making progress on inflation. Not as much as we had hoped, but some progress on inflation," Powell said. “The rate forecast is conditional on the performance of the economy. If we don't see that progress, then you won't see the rate cut.”

Today's rate decision comes amid a backdrop of extraordinary geopolitical and domestic tensions, including escalating conflict in the Middle East, persistent energy market volatility, ongoing trade frictions, and a criminal investigation of Powell by the Trump administration's Justice Department.

The target range for the federal funds rate remains at 3.50% - 3.75%.

What Wednesday’s decision means for mortgages

Mortgage rates are more likely to move off tensions surrounding the war in Iran than the Fed’s rate decision itself, because the conflict is driving oil prices higher, fueling inflation fears, and pushing up Treasury yields — the primary benchmark for mortgage pricing.

As long as energy prices remain elevated and markets stay volatile, mortgage rates are likely to remain under upward pressure. For homebuyers and those looking to refinance, it may be prudent to lock in a relatively low rate now. 

Impact on home buyers

While mortgage interest rates are a key element to housing affordability, it's also true that a low interest rate environment can drive up real estate prices or keep them elevated. If you're buying near-term, you may want to lock a rate now. If you're looking to buy six or more months out, it's possible you could see lower rates later this year, especially if the war in Iran is resolved. 

Mortgage rates track long-term Treasury yields more than the federal funds rate itself. Homebuyers should watch the 10-year treasury yield and lender rates over the next few days as markets digest today’s rate decision and Powell’s comments. The 10-year Treasury yield was at 4.261% on Wednesday afternoon.

Impact on refinancing

If refinancing is on your radar, you might consider refinancing now to avoid potential rate volatility, especially if you’re in an ARM (adjustable rate mortgage) that has adjusted to a variable rate or if you’re in a fixed rate over 7.0%.

Refinancing is a tool to manage long-term risk and hedge against further volatility. Though a cut is expected later in the year, there are no guarantees. If inflation remains high, the labor market rebounds, or the war with Iran continues, we could see rates in a holding pattern or possibly rise.

Economic factors that influence the Fed's decision

Cutting interest rates may seem like a no-brainer when you think of how much you might save on borrowing costs. But it’s not that simple. The Fed considers a slew of factors, the most significant are typically:

• Inflation: Whether core inflation is moving toward or away from the Fed’s 2% target.
• Labor market strength, weakness, and resiliency: Employment levels, wage growth, and signs of cooling or overheating are taken into account.
• Economic growth: GDP, consumer spending, and business investment that signal momentum or an economic slowdown.
• Financial and global risks: Market stability, tariffs, geopolitical tensions, and credit conditions that could threaten the economic outlook.

Fed rate cuts: benefits and risks

Benefits

Lower interest rates generally spur borrowing activity. A robust credit market not only makes it easier for you to refinance your mortgage, buy a new home, or borrow money in general, but it also makes it easier for businesses to expand and invest. In turn, businesses have lower borrowing costs, which can free up funds to hire additional employees. In other words, lower interest rates can reduce unemployment and potentially increase salaries — all seemingly good things and why the Fed chose to cut rates this month.

Risks

As a result of more people having more disposable income, the cost of goods can also increase, a.k.a. inflation. When inflation rises, it makes it harder to afford basic necessities, like food or a roof over your head — especially if the cost of necessities rises faster than your salary.

The current housing affordability crisis is one example of this. Record-low mortgage rates during the pandemic (low borrowing costs, see above) plus a work-from-home revolution contributed to one of the fastest-growing housing markets ever. The index for shelter inflation increased from under 2.5% to over 7.5% between March 2021 and March 2023. It’s currently at 3.0%, based on data released in February by the Bureau of Labor Statistics (BLS). Core inflation rose 2.5% over the past 12 months, above the Fed’s 2% target.

What happens next with mortgage rates?

Interest rate traders, generally, are not anticipating any rate cuts until later in the year — the majority see rates steady into October. However, the small minority expecting a rate hike has increased.

Powell's term as Fed chair expires in May. If he chooses to stay on as a governor (his term expires in 2028), it could have an impact on rates. The incoming Fed chair is widely expected to be dovish on rates, while Powell is considered a centrist or cautiously hawkish or dovish. It was announced this week that he will likely stay on until U.S. Attorney Jeanine Pirro’s investigation is resolved. His term as a Governor expires January 2028.