A Trump-induced interest rate cut won’t actually lower mortgage rates

• Reducing the compressed interest rate You will not reduce mortgage rates. An economist said he could do the opposite. If there is a doubt about the independence of the central bank – whether it is a political neutral and committed to its double delegation of stable prices and the maximum employment – it may lead to more chaos in the bond market. This is likely to increase the treasury rates for 10 years, and sends mortgage rates.

Stock prices are escalating by simply voting by President Donald Trump from his comprehensive introductory system on the so -called “Liberation Day”. But it seems that selling bonds caught his attention (although he denies it), and put some definitions on the ice. This sale is sent in long -term revenues to the height wealth Sean Talti wrote, Trump, “Horphous with the rates on the treasury bonds for 10 years” because it affects the mortgage rates-and promised to make America well.

The President has repeatedly called on the central bank to reduce interest rates, but lowering the White House prices caused by the White House can do one thing that he does not want: raising mortgage prices.

“The president who puts this pressure on the federal reserve will not actually achieve his goal, if his goal is less than the mortgage rates,” said Chen Zhao, head of Economy Research at Redvin. luck. The White House did not immediately respond to a request for comment.

On April 21, Trump posted social media informing the federal reserve of reducing interest rates to stop the slowdown because inflation no longer represents a problem for him. The President of the Federal Reserve, Jerome Powell, called “Al -Sayed after it is too late” and “the main loser”. A few days ago, Trump published that Powell’s end could not come quickly enough, but he changed his melody since then. However, Trump wants low interest rates. At the same time that he said he does not intend to launch Powell, he said: “This is an ideal time to reduce interest rates.”

But the reduction in the rate of benefits is not the answer to low mortgage rates, and the compressed reduction may lead to the worst things. It should not be surprising that the high mortgage rates will not be good for the world of housing that currently stops. House sales are not far from the levels that were seen in the wake of the great financial crisis because many people do not buy or sell. Potential buyers have costs because home prices and high mortgage rates are already high, and potential sellers do not leave because they do not want to lose low mortgage rate.

Federal funds are not directly related to mortgage rates. These are the treasury rates for 10 years, and the spread between the two is higher than the usual due to the volatility of the customs tariff that resulted from recession calls, inflation concerns, and the slowdown of anxiety. The federal reserve in waiting and vision is because the customs tariff can stimulate inflation, spending on slow consumers and investment of business. However, Trump’s comments on the Federal Reserve and its chair prompted discussions about the relationship between the White House and the central bank.

“If we think there is a threat to feed independence, this is a kind of other point in the camp of more chaos, less faithful to the United States,” said Zhao.

She later said: “There is an idea that you can force the federal reserve to reduce, then if they reduce, this means that mortgage rates should decrease mechanically, but this is not what happens.” “Because the Federal Reserve only controls the rate of federal reserve funds. Everything is determined by the markets.”

If the central bank is forced to reduce, investors – and therefore markets – do not see the federal reserve that is politically neutral. The lack of confidence in the Federal Reserve and its commitment to its double mandate to monitor stable prices and the maximum employment, can once again lead to sales in the bond market and send increasing returns. In addition, investors may expect the worsening economy, especially the stagnation economy, a bad mixture of high inflation and stagnant growth. This will pay for long -term interest rates, too, because a lot in terms of long -term interest rates are determined by what the bond market is pricing.

Before the Federal Reserve reduced the main interest rate for the first time in September 2024 after curbing inflation in the epidemic, real estate mortgage rates decreased. They fell from the anticipation of lowering prices, more than the same pieces. Similar to the victory of the electoral president also happened, he sent Trump’s expectation of mortgage prices because people were betting on a second term that would come with a more hot inflation.

In a post -severed research note, one of the two connotations of the Economic Mai Economy wrote that the federal interest rate is the interest rate in which banks lend money to each other overnight: a short -term interest rate. Mortgage rates, on the other hand, are long -term rates that are determined in the bond market. The analyst said that the 30 -year mortgage rate was registered at the treasury note for 10 years, which was set by investor expectations, so when the rate moves in the treasury notes for a period of 10 years, the mortgage rates are their example. In a separate note, senior economists in Richmond Richmond wrote the spread between the Ministry of Treasury for a period of 10 years and the mortgage tends to a sharp increase in times of economic stress.

If the Federal Reserve has reduced interest rates next month at its next meeting (after he warned Powell that the agenda of Trump’s tariff could enter into the era of inflation and maintain a cautious approach to monetary policy) that could send a message to bond investors.

“The markets may say, well, at some point in the future, it will be very bad … The patient will get sick to the point that we must apply more medications,” Zhao explained. “If this happens, this means that we must take much more prices than we will get.”

This story was originally shown on Fortune.com

2025-04-27 12:21:00