The average long-term U.S. mortgage rate climbed this week to its highest level in nearly nine months, reaching 6.51% as the Iran conflict continues to disrupt energy markets and drive up borrowing costs for American homebuyers. The increase comes at a particularly challenging time, hitting consumers during what is traditionally the housing market's busiest season.
Freddie Mac reported Thursday that the benchmark 30-year fixed-rate mortgage rose to 6.51% from 6.36% last week. While the average rate remains below the 6.86% recorded a year ago, rates have been mostly trending higher since the war with Iran began. The closure of the Strait of Hormuz has roiled energy markets, sending crude oil prices sharply higher, a key driver of inflation.
Energy Crisis Drives Economic Uncertainty
Expectations of higher oil prices and worries about big and growing debts for the U.S. government and others have pushed up long-term bond yields, causing mortgage rates to head higher. The average price for a gallon of regular gasoline rose again this week, ending at about $4.55 per gallon on Friday, according to AAA. Gasoline prices are about 45% above where they were at this time last year.
U.S. retailers have spent months navigating an uncertain economic environment, from President Donald Trump's tariffs to the impact of soaring gasoline prices due to the Iran war. Based on quarterly financial reports from Walmart, Target, Home Depot, Lowe's and TJX, shoppers are cautious but still spending, helped by more generous tax refunds. Economists widely believe that once those refunds dry up, shoppers will pull back on spending.
Mixed Retail Signals
Walmart issued a forecast for the current quarter on Thursday that was weaker than Wall Street had been expecting. Target raised its annual revenue outlook on Wednesday, saying it expected momentum to continue the rest of the year, though the upgraded sales expectations were still below the pace of the first quarter. Consumer spending is the dominant economic engine for the U.S., and a retreat would have broad implications for the U.S.
Labor Market Remains Resilient
Fewer Americans filed for jobless aid last week as layoffs remain low despite a number of uncertainties that continue to cloud the economy. U.S. applications for unemployment benefits for the week ending May 16 fell by 3,000 to 209,000, the Labor Department reported Thursday. That was fewer than the 213,000 new applications analysts surveyed by FactSet had forecast.
Weekly filings for unemployment benefits are considered a proxy for U.S. layoffs and are close to a real-time indicator of the health of the job market. Despite historically low layoffs, the labor market appears to be stuck in what economists call a low-hire, low-fire state. That has kept the unemployment rate low at 4.3%, but left many of those out of work struggling to find new employment.
Corporate Profits Buoy Markets
Wall Street rose toward the finish of an eighth straight winning week, its longest such streak since 2023, even as a survey showed the same day that U.S. consumers are feeling worse about the economy. Shares of Workday and Zoom Communications rose after both delivered better profit reports for the latest quarter than analysts expected. They are the latest companies to top analysts' expectations for profits for the start of 2026. The series of such reports has helped U.S. stocks remain near their records. Stock prices tend to follow the path of corporate profits over the long term.
Why This Matters:
The confluence of rising mortgage rates, surging energy costs, and mounting government debt presents a critical test for the U.S. economy's resilience. Higher borrowing costs directly impact household formation and wealth creation through homeownership, while gasoline prices 45% above last year's levels function as a regressive tax on working families. The corporate sector's ability to deliver strong profits amid these headwinds demonstrates private enterprise's adaptability, yet retailers' cautious outlooks signal vulnerability once temporary supports like tax refunds disappear. The labor market's low-hire, low-fire dynamic suggests businesses are managing uncertainty through restraint rather than expansion. With consumer spending driving the U.S. economy and geopolitical disruptions constraining energy supplies, the sustainability of current consumption patterns remains uncertain, particularly as fiscal pressures mount from growing government debt.