How much will mortgage rates fall with the Iran deal and Fed week?

What a crazy weekend: we had the NBA finals, a possible legit deal with Iran and we are all getting ready for Fed week with Kevin Warsh as the new Fed Chair. But the main question is: will mortgage rates get better now? On Sunday, President Trump announced that a deal had been agreed to and that it should be  signed on Friday — and then the oil will flow.

But how will the conflict ending help mortgage rates? Inflation is hot, the labor market has improved and the Fed is now run by hawks with very few doves left. Let’s dive in.

Oil and mortgage rates

First, getting closure on this conflict is very important. My peak 10-year yield forecast for 2026 was 4.60%, with a peak mortgage rate forecast of 6.75%, based on an improving labor market while inflation remained firm. 

Market-wise, the worst levels of the conflict pushed the 10-year yield to 4.68% and mortgage rates got to 6.75%. Currently rates are 6.58%. Now, if this conflict is really over and we don’t have disaster-related mistakes getting oil out, the worst rates for the year are over due to oil prices. On May 25, I outlined the metrics for what the 10-year yield should do if the market was pricing based on the conflict being over: rates should hit the 4.46%-4.48% mark, which happened on Friday. 

As I write this on Sunday night, the 10-year yield is at 4.43%. The next two levels I laid out of 4.35% and 4.24% are as low as I can go for now, short-term, because the labor market has improved since the start of the year and inflation is still running hot. I need to wait and see what happens with the Fed this week. So the downside is limited, unless we get some bad economic data and the Fed doesn’t go full hawk mode on us.

This Fed week is critical

If we hadn’t reached a deal to end this conflict, the Fed would be very hawkish at this week’s meeting and there isn’t anything Warsh could do about it. The only thing Warsh can do at this meeting is try to convince the hawks to be patient and not talk about raising rates soon, since oil prices are at levels we saw in 2024 and 2025.

However, inflation is well above target and the labor data has gotten better, so don’t expect the Fed to talk about rate cuts; just look for the hawks to try to lose the easing bias, and then basically say that if inflation doesn’t improve, they will look to hike rates.

How the bond market reacts to news about the conflict, economic data and the Fed meeting will be a good test of where bond traders stand. Just remember that every time the 10-year yield moved below 4% in 2023, 2024, 2025 and 2026 it was driven by labor market and economic growth concerns. However, since mortgage spreads are much better now than then, it’s hard to get rates over 7%.

On a positive note, we already have many rate cuts in the system. This has allowed rates to stay with a 6% handle for all of 2026 due to the better mortgage spreads above. However, the downside is that we have a lot of Fed hawks now who want to raise rates, so let the Fed battle begin this week.

Conclusion

It’s a huge win that we are talking about oil prices at $81 tonight rather than heading above $100 if the conflict wasn’t ending. However, I believe 65%-75% of the range for the 10-year yield and mortgage rates is determined by Fed policy. This year we have gone from two to three rate cuts being discussed to now talking about another rate-hike cycle.

So, it’s a plus that this conflict should be ending soon, but we need oil flowing again and then we can work back to the economic data, which means labor data and inflation data are key. Both labor data and inflation are moving in ways that make it hard for the Fed to cut rates.

Right now, the best-case scenario for mortgage rates following a favorable Fed meeting is a range of 6.25%-6.375%; the normal base case is 6.50%-6.75%. If Warsh can’t calm the hawks down and the labor and economic data stay firm with inflation still rising, the worst-case situation is 0.375%-0.435% higher than the 6.75% peak forecast. That would mean the economy is very firm, with inflation running super hot, and the hawks would be running the Fed, not Warsh.