Mortgage Rates Today, Tuesday, June 2: A Sudden Jump

Mortgage rates swung sharply this week as conflicting reports on Iran's involvement in peace negotiations rattled bond markets, pushing the average 30-year fixed rate higher before a partial retreat erased the gains.

On Tuesday, the average interest rate on a 30-year, fixed-rate mortgage jumped to 6.42% APR, according to rates provided to NerdWallet by Zillow ^[1]. The increase followed reports that Iran had walked away from the negotiating table, an abrupt upward turn that analysts linked to bond market reactions ^[1]. The rate was 10 basis points higher than the previous day and four basis points higher than a week earlier ^[1]. A basis point is one one-hundredth of a percentage point.

By Wednesday, the rate had dropped to 6.32% APR, a decline that erased the prior day's jump and returned borrowing costs to where they were on Monday ^[2]. The reversal underscored how sensitive mortgage pricing has become to hour-by-hour developments in the conflict.

Despite the daily swings, rates have mostly stayed within a finite range ^[1]. The war in Iran has been a major mover of mortgage rates since the conflict began, primarily through its effect on inflation ^[1][2]. Disruptions to oil production and international shipping have throttled supply chains and raised prices, accelerating the rate of inflation ^[2].

Last week's Personal Consumption Expenditures price index showed that in April inflation reached its worst level since May 2023 ^[1]. The Federal Reserve targets a 2% PCE; April's reading was 3.8% ^[1]. Rapid inflation generally means the Federal Reserve needs to raise interest rates, not lower them, because higher borrowing costs are meant to reduce spending and demand, cooling inflation ^[1][2].

Federal Reserve Chair Kevin Warsh has his own rationale for rate cuts, but the inflationary environment complicates that path ^[1][2]. The central bank's job could become more difficult if upcoming employment reports show a faltering labor market. The Fed usually stimulates employment by cutting rates, but lowering interest rates in an inflationary environment risks further fueling inflation ^[1].

Three employment reports are due this week: the Job Openings and Labor Turnover Survey, ADP's National Employment Report, and the Employment Situation Summary on Friday ^[1]. NerdWallet senior economist Elizabeth Renter noted that the U.S. job market is shifting under changing demographics, broad economic uncertainty in the face of war, and potential structural changes introduced by AI ^[1].