During a speech in Iowa yesterday, President Trump once again reiterated his pledge to bring down mortgage interest rates.
He also noted that they were already at three-year lows, which has led to a 30% spike in mortgage applications, including a 100% rise in refinancings.
Trump has been outspoken on the subject since he started campaigning prior to the election, saying multiple times he’d get mortgage rates back down to 3% or even lower.
One of the ways he intends to do this is via a new rate-friendly Fed chairman once Powell’s term is up in mid-May.
But do you believe he has the power to make it happen, or is it just more fluff?
Trump Says Mortgage Rates Will Drop Once Powell Is Out
It’s no secret that President Trump doesn’t like the current Fed chair Jerome Powell.
He even has a nickname for him, calling him Jerome “too late” Powell.
As in, too late to lower rates despite inflation no longer being a concern.
But that will apparently change once Powell’s term ends in a few months, and a new Fed chair enters the fray.
During his speech yesterday, Trump lamented about these apparently restrictive rates but offered a glimmer of hope, saying, “When you’re really good you can get ‘em down despite everything cause ultimately it just sort of follows nature.”
“Mortgage interest rates are now at the lowest level in three years and new mortgage applications are up 30%.”
“By the way, when we have a great Fed chairman, I think we’re gonna have one, I’ll announce it pretty soon.”
“You’ll see rates come down a lot.”
It’s one of Trump’s greatest hits where he attacks Powell and claims lower mortgage rates are just around the corner.
How Much Could Mortgage Rates Actually Fall?
So once again, he’s making the promise that mortgage rates will come down even more than they already have.
It’s unclear how much, but the phrase “a lot” would indicate a decent amount, right?
The 30-year fixed is currently just above 6%, having fallen about one full percentage point from a year ago.
But it remains well above the sub-3% levels seen in early 2022 before the Fed wound down the final round of QE and began hiking rates.
And that brings up an important point. The Fed doesn’t set mortgage rates and ultimately doesn’t have a ton of influence outside its Quantitative Easing (QE) program.
The Fed rate cuts are driven by underlying economic data that is known and essentially baked into mortgage rates and 10-year bond yields before the Fed makes its rate decisions.
So it’s really labor and inflation data that determine mortgage rates, not the Fed reacting to such data with a rate cut after the fact.
In addition, the odds of them running back another round of QE seems pretty unlikely unless they want to reignite inflation, something we’ve battled since early 2022.
Even with a friendlier Fed chairman, this seems unlikely and so does a return to 3% mortgage rates.
His Policies Need to Support Lower Interest Rates
Ultimately, if Trump wants to get mortgage rates down, even a little bit, he needs to push policies that don’t get in the way.
Things like tariffs and trade wars have led to higher inflation, higher bond yields, and less appetite for our U.S. Treasuries, which accomplishes the exact opposite.
Instead of seeing demand rise for our Treasuries and mortgage-backed securities (MBS), we’re seeing other countries choose to invest their money elsewhere.
And if we keep alienating those around us, who is going to buy our long-term debt and push our interest rates lower?
While a new Fed chair could come in and lower the federal funds rate, which is a short-term rate, it might do nothing for long rates like the 30-year fixed.
In fact, it would likely just result in a steeper yield curve, with only HELOCs and adjustable-rate mortgages becoming cheaper.
Long story short, if Trump truly wants to bring down 30-year fixed mortgage rates, he needs to act in a way that supports that goal instead of constantly undermining the path to get there.
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