Mortgage rates in the U.S. hit their highest level in a year on Thursday as renewed tensions in the Middle East and the Federal Reserve’s interest rate decision this week fanned inflation concerns. 

The rate on a conventional 30-year mortgage averaged 6.66% in the week ending July 30, the highest level since July 2025, according to data from Freddie Mac. 

Inflation can drive up mortgage rates, which tend to track the bond market, particularly the 10-year Treasury yield. Those yields jumped after the Fed on Wednesday left its benchmark interest rate unchanged.

Despite that decision, three members of the central bank’s rate-setting panel voted for a rate hike, fueling concerns that the Fed could eventually raise rates. Investors also appeared to question Federal Reserve Chairman Kevin Warsh’s commitment to raising interest rates to bring consumer prices under control. 

New government data released on Thursday shows the Fed’s preferred measure of inflation slowed in June, a hopeful sign, although inflation remains stubbornly above the central bank’s 2% annual target.

“While it’s unclear if or when the central bankers might raise the funds rate, there’s plenty of concern that inflation’s running unchecked,” Kate Wood, a lending expert at NerdWallet, told CBS News in an email.  “Between that and Iran, we’re seeing Treasury yields surge, and mortgage rates are being dragged up along with them.”

Rate hikes ahead?

Deutsche Bank expects the Fed to raise rates twice this year by a total of 0.50 percentage points, which would bring the federal funds rate to between 4% and 4.25%.

Mortgage rates are also drifting higher amid concerns that fighting in the Middle East could accelerate inflation, as shipping disruptions in the region push up oil and fuel prices. 

“Because oil remains the primary channel through which the Iran conflict feeds inflation, a de-escalation and a reopening of the Strait of Hormuz remain the clearest path back toward lower rates,” Realtor.com senior economist Anthony Smith said in an analysis.

Hopes for a peace deal have unraveled as Iran and the U.S. continue to exchange strikes. The conflict appeared to expand to Egypt on Wednesday after drone strikes caused two natural gas vessels to catch fire in Egypt’s Mediterranean port of Damietta.