A White House-Induced Fed Rate Cut Would Likely Push Mortgage Rates Higher

The White House is pushing the Federal Reserve to cut rates, while the central bank adopts a wait-and-see approach. President Trump has also explored the possibility of removing Chair Powell before his term is up in May 2026. Let’s explore how these outcomes could affect mortgage rates.

If the Fed succumbs to White House pressure and cuts the Fed Funds rate at an upcoming meeting, mortgage rates are actually likely to increase.

• Mortgage rates are long-term rates that are determined by bond market investors and reflect a collective view on economic conditions years into the future. The Fed controls the Fed Funds rate, an overnight lending rate that influences—but does not directly impact—long-term rates like mortgage rates. In fact, mortgage rates often do not move in the same direction as the Fed Funds rate.
• The Fed’s independence has long been seen as critical to its ability to effectively maintain low inflation and unemployment. If the Fed cuts rates at the behest of the White House, investors will perceive that the Fed is not doing its job and may anticipate that inflation will only get worse. That means rates need to be higher in the long run.
  • This scenario actually played out in the 1970s and 80s when President Nixon pressured Fed Chair Arthur Burns to keep rates low ahead of the 1972 presidential election. Inflation further spiraled out of control as a result and it wasn’t until Fed Chair Paul Volcker hiked the Fed Funds rate to 20%, bringing on a severe recession, that inflation was controlled.
• Alternatively, if the Fed was pressured into also conducting Quantitative Easing (QE), where they directly purchase long-dated treasury or mortgage securities, that would mechanically bring down mortgage rates. However, QE has only been used in times of extreme duress to the economy (financial crisis and COVID) and there is no legitimate reason currently to use this tool.
• The best way to bring down mortgage rates would be to address the fundamental drivers of inflation in the economy, including recent changes to tariff policy and the long-term shortage of housing.

Chair Powell losing his job will not necessarily result in cuts to the Fed Funds rate, because he is only one member of twelve on the Federal Open Market Committee (FOMC).

• • The FOMC, which sets monetary policy, is made up of twelve voting members. Seven of these are from the Board of Governors, including Chair Powell, and five are presidents of various Federal Reserve Banks. The members of the Board of Governors are nominated by the President and confirmed by Congress. However, the presidents of Federal Reserve Banks (five of whom vote on the FOMC at any given time) are chosen by each bank’s board of directors and confirmed by the Board of Governors.
  • Historically, the Fed Chair has outsized influence over the FOMC. However, that need not be the case. If the Fed Chair were to be seen as responding to political influence, the other FOMC members may well vote against them.

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