Worst-case mortgage rate scenario appearing less likely despite mixed messages emerging from White House
US president Donald Trump is offering mixed messages at best in his Israel-backed crusade against the Islamic Republic of Iran.
New reports suggest the Trump administration has entered talks with key Iranian officials, with a 15-point plan drawn up in efforts to deescalate a war which is showing an increasing lack of direction.
“They’re talking to us, and they’re talking sense,” Trump said during an Oval Office event on Tuesday.
He said Iran wants to make a deal “so badly”.
The war has been “a tremendous success… They have no navy left. They have no air force left. They have no anti-aircraft equipment left, no radar left, leaders left.”
But as the spin machine seeks to frame the war as a win for the Trump administration, others reports suggest the campaign is only ramping up.
Reuters is reporting that thousands of US troops are in the process of being deployed to the Middle East, while the all-important Strait of Hormuz remains under tight lockdown by the Iranians.
Closure of the strait – where 20% of all global oil supplies are transported – has sent shockwaves through the global energy markets.
Here in Australia, consumers are facing record-high prices at the gas pump, sparking an upward revision of forward inflation expectations.
It’s exactly what the Reserve Bank of Australia (RBA) doesn’t need as it attempts to wrest control of a spiraling consumer price index.
Annualised inflation has rocketed up to 3.8% this year, having dipped as low as 1.9% in June 2025. This is significantly above the central bank’s target range of 2-3%.
As such, the RBA has been strongarmed into increasing the cash rate by 50 basis points to 4.1% over the past two months, causing a widespread repricing of mortgage rates across the whole market.
As homeowners contend with the prospect of 6%-plus mortgage rates, they could unfortunately be facing worse to come.
At its peak, the Australian three-year bond yield – which offers a rough estimate of where the market expects the cash rate to move to next – topped out at 4.87% on Monday. The implication from the market was that the RBA had three more rate hikes up its sleeves; a dire prediction for hard-pressed homeowners.
Perhaps they can take a deep breath today.
The three-year yield has retreated to a weekly low of 4.66%, taking the edge off the more apocalyptic cash rate forecasts.
The RBA Rate Tracker, which shows market expectations of a change in the cash rate, currently shows a 55% market expectation of a cash rate increase to 4.35% in May. This is down from 72% last Friday.
Similarly, oil prices have retreated from highs of $109.58 per barrel of Brent Crude earlier this week to just below $96.5 today.
Yes, it is likely that higher rates are coming our way in the months ahead, but perhaps the worst-case-scenario for mortgage holders isn’t the most likely bet.
However, with a shall we say unpredictable president in the White House throwing out mixed messages on the Iranian war, who knows what tomorrow will bring.
