Iran War Drives Oil Prices Near $100, Fueling Inflation and Higher Borrowing Costs

The ongoing Iran war is having a significant impact on the US economy, causing inflation and higher borrowing costs. The recent spike in oil prices to nearly $100 per barrel has led to increased energy costs, which are already reflected in rising mortgage rates. According to Freddie Mac, the average 30-year fixed mortgage rate reached 6.58 percent on July 23, up from 6.43 percent at the beginning of the month.

The Federal Reserve is facing a difficult decision as it prepares for its July 28-29 meeting. With one-year inflation expectations rising to 4.6 percent in June, according to the University of Michigan survey, the Fed may be less inclined to support economic growth. A prolonged oil increase could further strengthen the case for keeping interest rates elevated.

The bond market is already reflecting this uncertainty, with Treasury yields reaching 4.71 percent and the 30-year yield near 5.20 percent before easing slightly on July 24. This has a direct impact on American borrowers, as higher yields increase the cost of borrowing for mortgage rates, business debt, and other credit.