The Iran war already hit gas prices. What it’s coming for next.

Mortgage rates

A third place the Iran war is poised to take an even bigger financial toll on Americans is in the mortgage market.

The average interest rate on a 30-year fixed mortgage has climbed a full half point since the war began, from just under 6% the day before the U.S. attacked Iran, to 6.53% on Friday.

The higher mortgage rates add another layer of pressure on would-be homebuyers just as the peak real estate season of the year gets underway.

Just a month ago, investors were expecting the Federal Reserve to cut its fed-funds interest rate at least once, if not twice this year, a move that would influence interest rates overall and indirectly drive down the cost of buying a home.

But now, growing fears of inflation caused by higher gas prices that in turn drive up the costs of shipping, food and heating are shifting expectations.

The odds of a rate cut were already slipping away Wednesday after the Federal Reserve’s meeting in Washington.

But on Friday, future market trading revealed that not only are the odds of rate cuts shrinking, but the odds that the Fed will vote to raise interest rates before the end of year to tamp down on inflation reached 50%.

Contributing to those rising odds were comments from Fed governor Christopher Waller, who said that he had initially planned to advocate for a rate cut at Wednesday’s meeting, but the Iran war changed his mind.

“This ​is looking ​like it’s ⁠going to be a much more protracted conflict, and oil ​prices are going to stay ​high ⁠for a longer time,” Waller said on CNBC. “So that suggested inflation was more of a concern.”

Waller was nominated to the Fed by Trump in 2020, but the concern he aired about a longer war in Iran fueling inflation runs counter to the administration’s message.

Trump has pressured Fed board members for years to lower interest rates, arguing this would increase economic growth. At the Fed’s meeting in January, Waller voted to cut interest rates by a quarter point, dissenting from the majority of the Federal Open Market Committee, which voted to hold them steady.

Coupled with the shifting expectations of the market about interest rates, Waller’s comments underscore how much the war has changed the trajectory for the U.S. economy in just three short weeks.