The Fed Is Fighting a Gas Pump, Not Inflation
Welcome to the Skeptical Investor blog right here on BP! A frank, hopefully insightful, dive into real estate and financial markets. From one real estate investor to another.
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This week, we’re talkin’ interest rates. They jumped again, and the headlines want you scared. The problem: it’s the price of gas, not the health of the economy. Core inflation is actually cooling, and the Fed is leaning on rates to fight a supply shock it has no power over. I'll show you why us real estate operators should look at 7.43% and shrug, why high rates slow housing sales instead of crashing it, and why energy, not the Fed, is the number to watch from here.
Let’s get into it.
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Today’s Interest Rate: 7.43%
(☝️ .23% from this time last week, 30-yr mortgage)
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The Weekly 3 in News:
- -Mortgage rates jumped a quarter point in a week. The daily 30-year fixed moved from 7.20% on September 18th to 7.43% on September 25th, with a single-day leap of 19 basis points on the 24th (Mortgage News Daily). That was fast…the fastest weekly climb since the spring war shock, and it’s almost entirely a bond-market reaction to energy prices.
- -Inflation held at 3.4%, and gasoline did most of the lifting. August CPI came in at 3.4% year over year, unchanged from July, with gasoline up 3.9% on the month and about 27.4% over the year, accounting for more than a third of the entire monthly increase. Take out food and energy and core inflation eased to 2.4%, down from 2.5% (BLS). The real-time reading is softer still: Truflation, which samples millions of daily prices, has the figure near 2.33% (Truflation).
- -The market thinks the Fed hikes again in October. Futures put the odds of another quarter-point increase on October 28th near 69% (CME FedWatch). The labor market is giving the Fed room to keep going: the economy added about 162,000 jobs in the most recent report with unemployment at 4.1% (BLS), so there is no obvious weakness forcing them to pause. Sit with the logic for a second, though: they are raising the cost of borrowing to push down a price that the cost of borrowing does not touch. You cannot hike a barrel of oil out of the Strait of Hormuz.
Fun Things Happening in Nashville This Week:
- -Predators home opener, Thursday, October 1, 7:00 p.m., Bridgestone Arena. Nashville drops the puck on the 2026–27 season against the Minnesota Wild.(Nashville Predators)
- -Nashville Oktoberfest, October 1–4, Bicentennial Capitol Mall. The city’s biggest fall festival, with beer, brats, and oompah bands taking over the mall. Thursday and Friday before 4 p.m. are free with an online ticket, paid after. (The Nashville Oktoberfest)
Fun Oktoberfest fact to drop at the beer tent: the original Oktoberfest was a wedding party, held in Munich in October 1810 to celebrate the marriage of Crown Prince Ludwig, and it was such a hit the city simply kept throwing it. Only beer brewed within Munich’s city limits, and conforming to the 1516 Bavarian purity law, may be served in the official Munich tents, which is possibly the oldest “buy local” event legally still enforced anywhere. Take that farmers markets. (And it starts in September now just because late-September weather is warmer than mid-October. A practical and very German thing to do). And the slang for Oktoberfest is Wiesn, short for Theresienwiese, which is the field where it is held in Munich, which in turn is named after the princess in the wedding.
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An Energy Story Masquerading as Inflation
I will make 3 arguments this week:
First, the inflation driving rates higher appears to be mostly an energy event, and energy events tend to be temporary. Second, even when rates are genuinely high, history is fairly clear that they freeze housing rather than crash it. And third, and most important for anyone who actually buys buildings, investors do not really care about the level of rates the way the headlines assume. We price them in.
But before we get into it, here’s a quick look a the key data for the week:
Key Data Snapshot, week of Sept 28, 2026. Sources: Mortgage News Daily, CNBC, CME FedWatch, BLS, Truflation, St. Louis Fed (FRED), University of Michigan, Census/HUD, NAR, Apartment List.Look at what is inside the inflation number. The headline sits at 3.4%, core has cooled to 2.4%, and the real-time index is near 2.33% (BLS; Truflation).
The underlying economy appears to be disinflating.
The headline is being propped up almost entirely by the price of a gallon of gas, which is up more than a quarter over the year (BLS). So the Fed and the bond market are leaning hard on the brakes to fight a number that is, at its center, a fuel problem.
Sources: BLS CPI (August 2026); Truflation real-time index.This is an energy scare rather than a system-wide / credit / consumer health scare: the financial plumbing is flowing well. The St. Louis Fed’s Financial Stress Index sits at roughly −0.79 and has drifted lower for most of the year, which indicates below-average stress in the financial system (St. Louis Fed). And the Atlanta Fed is projecting 5%+ GDP growth for this quarter (Atl Fed).
If borrowing at these levels were breaking something structurally, the Stress Index would be rising. Instead it is easing. It’s the same robust US economic story I wrote about a few issues ago in The G-Shaped Economy: this economy has taken every punch, an oil shock included, and kept moving forward.
So the question that actually matters is not “what will the Fed do?” It is “what will oil do?”
And here the most interesting work I have read lately, from Alexander Stahel, who writes as @BurggrabenH (great follow).
In a piece titled “Iran Has Lost Control of the Strait,” he argues that Middle East oil exports have quietly recovered to roughly 94% of normal despite the conflict, through what he calls the “Hormuz Shuttle.” The UAE’s national oil company pioneered it, running large tankers out of the Persian Gulf along the Oman coast, transferring crude ship-to-ship in safer water, then returning to repeat the loop. Saudi Aramco and Kuwait have since copied the model, to the point where Stahel counts well over a hundred vessels working the route. It is expensive, on the order of $28–30 per barrel just to move the oil out, but it is functioning, and in his read Iran’s grip on the chokepoint appears to be slipping.
The tempting conclusion is that oil is about to fall and this whole inflation scare simply evaporates within a quarter or two. Stahel himself is more careful, and I think his caution is the right call. In a follow-up he stresses that this is not an oil bear market yet. The shuttle is deeply inefficient, so the landed cost of crude, and therefore the price of diesel and gasoline, may stay elevated even if the crude benchmark slips below $100. The moment China ramps its buying back toward its normal nine to ten million barrels a day, the tanker system tightens again and prices could push higher, not lower. His real window for relief is the first quarter of 2027, and only if U.S. policy “stays the course” rather than handing Tehran another reprieve. After that, as flows normalize and tanker bottlenecks ease, he sees room for crude to fall meaningfully, with the UAE lifting output and a softer-than-advertised Chinese economy getting exposed. But then the world has to refill one and a half to two billion barrels of drained inventories, and how quickly that happens will set the floor. Lots of moving parts, as he puts it, so keep an open mind.
For you and me, the practical translation is this: relief on the energy side is plausible, maybe even likely, but it appears to be a two-quarter story with a geopolitical coin-flip in the middle, not a next-month certainty. You should not build a deal on the rate you hope arrives in the spring.
Sources: Trading Economics (WTI); CNBC / Yahoo Finance (10-yr Treasury), Sep 18–28, 2026.The chart above is important.
The one-month correlation between oil and the 10-year Treasury is now around 0.96, according to market strategists tracking the relationship (CNBC). Your mortgage rate, in other words, is currently riding the oil tape. When crude slipped under $92 late last week the pressure eased slightly; when Hormuz tensions flared again into Monday and crude bounced back toward $96, yields ticked right back up (Yahoo Finance). If you have ever wanted a single reason not to treat a mortgage rate as a permanent feature of the landscape, that is it.
Again, this is a supply-driven problem, full stop.
Rate hikes do not drill wells, they do not escort tankers through a war zone, and they do not rebuild a bombed pipeline. The Fed is aiming a demand tool at a supply shock, and on the one thing actually moving the number, the price of energy, it has no control at all.
If the history of interest rates as a force in markets interests you, Edward Chancellor’s is the best single book I know on the subject, and it reframes a lot of the “rates are high” panic. It is the kind of context that makes a week like this one feel smaller.
Second: high rates do not equal a housing crash
The scariest leap people make right now is from “mortgages are at 7.43%” to “so home prices must be about to fall.” Those two things are barely related, and the historical record is not subtle about it. Logan Mohtashami has a chart that I literally have on my office wall to remind me, and I want you to actually look at it:
Let’s remember what was happening at the time.
In 1981 the 30-year mortgage rate climbed north of 18%, more than double where we sit today, and national home prices did not collapse; in nominal terms they kept rising. In 2022 and 2023 we lived through the fastest rate shock in modern history, with mortgages roughly doubling from around 3% to over 7%, and national prices dipped only modestly off the peak before recovering to new records.
What high rates did in both episodes was crush transaction volume, not price.
People holding cheap mortgages simply refused to move. I made the same case in The Housing Market Is Frozen, Not Broken, and nothing new has changed my mind.
And the one time national home prices genuinely did crash, in 2008, mortgage rates were falling. That collapse, on the order of a 27% peak-to-trough decline in the national index, was not a rate event at all. It was a housing credit, unemployment and foreclosure event: a wave of forced sellers dumping homes because they could not make the payment and could not refinance. That is the actual mechanism of a housing crash. Prices fall nationally when owners are forced to sell, not simply when borrowing becomes expensive.
So look around today for the ingredient that causes crashes. Foreclosure activity remains near historic lows. Homeowners are sitting on record equity and are mostly locked into sub-4% mortgages they will never willingly surrender. Inventory, even after climbing to a decade-high 4.9 months of existing supply, is still historically lean in most markets (NAR). And that Financial Stress Index is telling you the credit system is calm (St. Louis Fed). No forced sellers, no credit rupture, no crash. What high rates give you is a slow, frozen, low-volume market, which appears to be exactly what we have, not a fire sale.
Third, and most important: Investors price in rates
Investors don’t really care about interest rates, in the abstract. We care about cash flow, and we build the rate into our numbers before we ever make an offer.
Think about how a deal actually gets bought. Almost nobody purchases real estate with a suitcase of cash and leaves it parked there. Most of us buy with a loan. Even the folks doing a 1031 exchange with cash usually refinance afterward to pull their capital back out and pay themselves. So for all practical purposes, most real estate is leveraged, three-to-one or four-to-one is completely ordinary, which means what a higher rate actually touches is cash flow, not the underlying logic of the deal.
And cash flow is an input I control at the offer. If money costs more, my debt service rises, my return falls, and so I offer less. That is the entire adjustment. It does not really matter to me whether the rate is higher or lower than it was yesterday; it matters that I price today’s rate into today’s offer. A skeptic buys the building, not the interest-rate forecast. Rates went up? Fine. Sellers get a little less from me. The math still has to work at the rate that exists, not at the rate anyone wishes for next spring. You can pressure-test any deal at today’s 7.43% in DealLab, my free analyzer, and watch how little the answer actually moves when you flex the rate a quarter point.
Two practical notes, because the financing structure matters more than the number on the sign. First, know which side of the four-unit line you are on. A property of four units or fewer is treated as residential, and you can still get a 30-year fixed loan on it fairly easily; once you lock that, the Fed can do whatever it likes for three decades and your payment does not move. Five units or more is commercial, and that debt is shorter and reprices, which is where rate cycles actually bite. If you own commercial multifamily, the rule is simple, and I will keep repeating it: stay ahead of the game and refinance before you are forced to. The forced refinance, into a maturity or a rate reset you did not choose, is where operators get hurt, far more than by the rate itself.
This is also, incidentally, the whole reason I treat cash flow and appreciation as separate engines. In my book, The 5 Ways Real Estate Investors Make Money and Build Wealth, I pull those apart on purpose, because they respond to different forces. Rates mostly press on the cash-flow engine, and that engine you can protect with structure, patience, and a disciplined offer. Appreciation, loan paydown, and tax treatment keep working in the background regardless of what the 10-year did this week.
Put the three arguments together and the week looks very different from the headline. The inflation pushing rates up appears to be mostly energy, energy appears to be a fixable and probably temporary problem, high rates historically freeze housing rather than crash it, and investors price the rate in and simply offer less. None of that requires rates to fall.
---The Steelman: The Case That I’m Wrong About Rates
I’m bullish on real estate and I think the rate panic is overdone. But, as a contrarian investor I always want to protect my downside, so, what if I’m wrong?
One: a rate is still a rate. A buyer trying to qualify this month does not care why the number went up. On a $400,000 loan, the move from 7.20% to 7.43% adds roughly $60 to the monthly principal and interest payment, and at the margin that removes real buyers from the pool. Higher borrowing costs also raise the odds that a stretched seller, or more likely a builder carrying spec inventory, has to cut price.
Two: the Fed isn’t trying to pump oil; it’s fighting what oil does to expectations. I stand by the point that the Fed has no control over a supply shock. But the hawks’ argument is narrower: the University of Michigan’s one-year inflation expectation just jumped to 4.6% from 4.0% (University of Michigan). If households and businesses start acting on that, with bigger wage demands and pre-emptive price hikes, an energy shock can harden into broad inflation. That is the 1970s script, and a central bank that ignored it would be taking a real risk.
Three: 1981 is less comforting than it sounds. Nominal home prices held up in the early 1980s, but inflation was running hot, so after adjusting for it, real home prices fell meaningfully. If you measure wealth in real terms, high rates did bite.
Four: commercial real estate does have forced sellers. Five-plus unit and office loans are short and they reset. The commercial debt maturity wall I wrote about in Headlines Scream Crisis. Data Say Calm. means some owners will be refinancing into 7%-plus money whether they like it or not, and some of them will have to sell. The single-family market has almost no forced sellers; the commercial market has some.
Where I land: points one, three and four are real, and they are exactly why the prescription is to underwrite today’s rate and refinance early, not to assume a rescue. Point two is the one that could prove me wrong. The test is simple: if core CPI, which strips out energy, starts climbing again, the shock has spread and the hawks are right. Right now core is cooling, at 2.4% and falling (BLS), which means the problem is still fuel prices.
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Nashville: One Metro, Two Markets
If you want to see the “price the rate in” idea play out in a single city, look at what August did to Nashville’s for-sale market. The single-family median came in at $515,725, up about 2.1% from a year earlier, while the condo median landed at $339,995, down roughly 3.8% (Greater Nashville REALTORS). (Year-over-year percentages calculated from the GNR monthly figures.) Same metro, same month, two different directions.
Source: Greater Nashville REALTORS / RealTracs, August 2026 (year-over-year change calculated).The split is condos, and in a market like Nashville they behave less like houses and more like apartments, because they compete for the same renter-turned-buyer and sit near the same wave of new multifamily supply the city has absorbed over the past three years. When financing gets more expensive and a glut of new rentals is dangling concessions, the marginal condo buyer has options and negotiating power, so that median softens. The detached house, scarce and rarely competing with a lease-up building down the street, holds its value. It is the same two-tier pattern I laid out last week in The Apartment Recovery Is Real.: the newest, most supply-exposed product absorbs the pressure, and the scarce, established product holds.
Meanwhile the wider Nashville economy is still adding fuel. The metro is still posting job growth even as headline relocations move slowly; Oracle’s long-promised campus, for example, remains years from its committed employment, a reminder to underwrite announced jobs on a delivery schedule rather than a press release.
And now my final thoughts.
My Skeptical Take:
Pay attention to your cash flow, not interest rates.
This is, at its root, a supply problem, and the Fed cannot fix a “foreign” supply problem: it does not control the Strait of Hormuz, it cannot manufacture oil, and no amount of tightening changes the number of barrels reaching a refinery. Core prices are actually still cooling, the financial system shows below-average stress, and the energy shock behind all of it may ease over the next couple of quarters, though the path runs straight through the Strait of Hormuz and I would not bet the ranch on the timing.
Even if I am wrong about oil, the history is fairly clear that expensive money freezes housing instead of crashing prices because downturns require forced sellers and there are almost none in sight. Unemployment remains very low and GDP is robust.
I for one am not going to let interest rates dictate what I do. I’m incorporating them.
If you own one to four units: a fixed rate is your best friend. Once it’s locked for 30 years, your mortgage doesn’t care what the Fed does.
If you own five units or more: look at your maturity date and PAY ATTENTION. If it’s inside the next two years, start the refinance conversation now, while you still get to choose the terms, not when the lender calls.
If you’re buying: underwrite today’s 7.43% and then stress-test another half point in a deal calculator like DealLab. If the deal only works with a rate cut, it really doesn’t.
If you’re waiting for relief: watch the tanker traffic through Hormuz and the core CPI number, not the Fed’s press conferences. That’s where the answer will show up first.
Treat any decline in rates next year as upside you did not pay for. Protect the downside first, and let the upside take care of itself.
Dwight Eisenhower, who knew a thing or two about acting under uncertainty, liked to repeat a line he picked up in the Army:
“Plans are worthless, but planning is everything.”
— Dwight D. Eisenhower, remarks to the National Defense Executive Reserve Conference (1957)
The plan that says rates will be lower by spring is worthless. Nobody knows, including the people confidently predicting it on television. The planning is everything: underwrite the rate that exists, refinance before you’re forced to, keep your reserves, and let the Fed and the oil market sort themselves out.
Until next time. Stay Curious. Stay Skeptical.
Herzliche Grüße,
-The Skeptical Investor
-P.S. If this newsletter has been useful to you, share it!
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