The average 30-year fixed mortgage rate rose to 7% last week, its highest level in nearly two years, increasing borrowing costs for homebuyers. The Federal Reserve raised its benchmark federal funds rate by a quarter percentage point on Sept. 16, bringing the target range to 3.75%-4% to address persistent inflation, but it does not directly set mortgage rates. Mortgage rates generally follow the 10-year Treasury yield, which can respond indirectly to Fed policy as well as inflation expectations, investor confidence, bond buybacks, geopolitical developments and oil prices. The 10-year yield had reached 5% before the Fed meeting, its highest level since 2023. Yields initially declined after the decision as investors viewed higher short-term borrowing costs as potentially slowing demand and inflation, but later rose again after developments outside the Fed, including a Japanese central bank rate increase that markets viewed as insufficiently firm on inflation. Oil and inflation remain key market concerns. Wars in the Middle East and between Russia and Ukraine have constrained global oil supplies, while West Texas Intermediate futures traded near $91 per barrel as of Sept. 22, up 35% since the start of the Iran war on Feb. 28, despite falling prices on hopes for renewed U.S.-Iran negotiations and the reopening of a major Saudi Arabian oil pipeline. Analysts and industry executives expect mortgage rates to remain elevated, although moderating inflation and lower long-term yields could ease them. A sustained decline in rates could bring pent-up housing demand back quickly, but the outlook remains uncertain. Homebuyers currently face borrowing costs comparable to the highs of the past four years and well above the historically low rates available to some borrowers during the COVID-19 pandemic.