The president-elect says he'll bring rates down to 3%. But critics believe his administration's policies could be inflationary
After sliding during the summer, mortgage rates have been on a steady march upwards in recent weeks – and uncertainty about how a change of government will impact the economy has sparked concerns of a further uptick.
Rates jumped near the 7% mark as Donald Trump surged toward the victory line on November 5, with some observers calling into question how the president-elect’s proposals including wide-ranging tariffs, mass deportations, and promises of tax cuts squared with his campaign pledge to bring mortgage rates down to 3%.
Directly influencing the trajectory of mortgage rates remains outside the remit of the presidency, and growing bond market unease has pushed yields higher as a potentially sharp change in government economic policy comes into view.
Hopes for a lower-rate environment in 2025 grew as mortgage rates finally began to dip at the end of May and the Federal Reserve adopted increasingly positive language on the prospect of rate cuts on the horizon.
But the broad pre-election consensus that rates would move gradually lower next year no longer looks a surefire bet, according to a leading mortgage executive, with Trump seemingly in no mood to moderate on some of his hardline stances.
“I think that, unfortunately, the direction of mortgage rates has changed since Trump got elected because his policies on tariffs, immigration and tax cuts are inflationary,” Melissa Cohn (pictured top), regional vice president at William Raveis Mortgage, told Mortgage Professional America, “and he seems like when he gets into office that he just wants to get everything done immediately.”
Alistair Brown of Alistair Brown International Real Estate highlighted Donald Trump’s re-election as a potential boost for UK property investors in the U.S.https://t.co/bwkpfGVsR0
— Mortgage Professional America Magazine (@MPAMagazineUS) November 19, 2024
Inflation fears rise – but not just because of Trump
This week, the president-elect appears to have confirmed a claim that he will declare a national emergency on immigration and use the military to begin deportations, while a potentially chaotic battle to have key cabinet and senior staff appointments ratified lies ahead.
“He wants to do everything right away… and as a result, from the moment the market started speculating that Trump was going to win and when he won the election, bond yields have gone up because the expectation is that we’re going to move into an inflationary economy and rates are going to go up,” Cohn said.
That means the outlook for 2025 is considerably “murkier” than it first seemed, Cohn said – and that’s not all down to Trump, either.
The US inflation rate increased by 0.2% month over month in October, spurred by higher housing and food costs, and last week also saw Fed chair Jerome Powell underline the central bank’s willingness to take a cautious approach on possible rate cuts.
Powell said a further uptick in inflation was still possible, and that the Fed was “committed to finishing the job” on securing the consumer price index (CPI) around its 2% target. The central bank, he added, is “right where we need to be” and “can be careful about [bringing rates lower].”
What other Trump policies will impact the mortgage market?
During the election campaign, Trump vowed to accelerate home construction by “opening up tracts of federal land” to build new houses. “We desperately need housing for people who can’t afford what’s going on now,” he said during an August news conference.
Cohn said that while some of Trump’s proposals could be good for the economy, his plan to deport millions of undocumented workers may present a challenge to home construction. Builders have expressed doubts about their ability to hire the workers needed if a wave of deportations begins.
The president-elect also believes he should have a say in how the Fed sets interest rates. “I think I have the right to say, ‘I think you should go up or down a little bit,’” he said during an October speech at the Chicago Economic Club.
“I don’t think I should be allowed to order it, but I think I have the right to put in comments as to whether or not the interest rates should go up or down.”
Powell, meanwhile, has previously invoked Trump’s ire. Still, while the incoming president, in the past, openly discussed firing him, Powell said after the latest rate cut that the President did not have the power to remove or demote a Fed chair.
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