Interest Rates May Surprise You This Year.

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Interest Rates May Surprise You This Year.

When we began the year 2026, the Fed Funds Futures Market expected two or three rate cuts this year. Those expectations have changed. Fed Funds Futures Market today are pricing in a 29% chance for fed hikes at the September meeting and 40% by the October meeting, and 57% by the December meeting. Notice, I said hikes rather than cuts. Cuts have been the assumption for 2026, but as of today, those are off the table. Inflation expectations have changed, and this is pushing rates up rather than down. The consumer price index showed its hottest reading in some time, as did the Producer Price Index. Mortgage rates are already nearing 7% again, and the 10-year government bond is at its highest level since 2007. The bond market is sending a message that all is not well. You may have heard the phrase, “higher for longer” and this is the general expectation on Wall Street as of today. If nothing changes in Iran, rates are likely to stay in this current range and maybe even drift a little higher. If you were born in 1980 or later, you are used to the 2-3% mortgage rates we saw before Covid. You might think that range was normal. But did you know that the median mortgage rate since Freddie Mac started tracking in 1971 has been 7.31%? This is according to US News and World Reports. That rate topped out at 18.63% in 1981 and got as low as 2.65% in January 2021. That’s quite a range. So even though rates may feel high today, we are actually a little below the average. 6-7% is actually normal. So, what might be a catalyst to bring rates down again? Well, if rates drift high enough this could create some constraints on the economy and slow things down. If this slowing reigns in inflation, you will see rates start to drift lower again. But if inflation remains hot even with higher rates, this could create a phenomenon known as stagflation. In that scenario the Fed is stuck. It wants to lower rates to promote business activity, but in doing so it risks higher inflation. We have a new Fed Chair, by the way. Kevin Warsh was recently confirmed by the Senate and will take the helm at the June meeting. But he’s taking the helm of a very divided Fed. It’s also a Fed where the former chair is remaining on the board. So, will Kevin Warsh be Fed Chair in name only, with the majority of its members taking their cues from former Chair Jay Powell? Will there be division and disagreement among the Fed? These are questions that will be answered in coming months – complicated dynamics in what is already a complicated tightrope to be walking.

Another catalyst for lower rates could be a peace deal in the Middle East. Although this looks very unlikely today, things can change quickly and if that comes about many of the inflationary pressures could ease and give the Fed room to reduce rates.

So, what should you do in light of the possibility as of today of higher rates?
Consider renovating rather than moving. Many of you have a mortgage in the 3% range. It will be hard for you to move because your payment could jump substantially. So, consider improving/refreshing the space that you already have. We may never see 3% mortgage rates again in my lifetime.

When making purchase decisions, give heavier weight to today’s facts rather than tomorrow’s speculations. Can you afford what you are considering today? Then go ahead and buy it. Prices could go down, but they could also go up. So, make your purchase decisions based on what is certain rather than what isn’t.

Shock your cash flows. If you are a small business, and if you have loans maturing or repricing in the future, go ahead and see if your cash flow can handle higher payments. If not, begin boosting your reserves today, or consider selling some of your assets since they have appreciated significantly to reduce your debt as well as your debt service. Yes, it is possible rates only go up for a very short period of time and then work their way back down. But if that happens, you’ll just be that much better off having gone through the exercise of making sure you can handle higher rates.

If you are a saver, and if you can get 5% fixed on something safe, lock it in as long as you can. Historically, 5% has been a fantastic low risk rate of return.

At Foundation Bank and MBC, we happen to have some solutions that aren’t FDIC insured, but that do offer fixed rates above 5%. If you want to see if this is a solution that is right for you, start your financial conversation with us by visiting foundationbank.org. We hope you’ll subscribe to this podcast to it in your favorite podcast app and share it on social media. Until our next episode, God bless you.

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of Foundation Bank/McKenzie Banking Company on May 19, 2026. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. Foundation Bank/MBC is an Equal Housing Lender, Member FDIC.