Trump today lamented once again about the Fed’s stance of keeping rates steady as they gather more information on inflation due to tariffs. He said that they “are choking out the housing market with their high rate, making it difficult for people, especially the young, to buy a house”.
Mortgage rates are closely linked to the 30yr Treasury rates. Long term rates are basically a projection on where short term rates will be in the future. The short term rates set by the central bank do influence long term rates but long term rates also incorporate a premium from inflation risk.
US mortgage rates (blue) vs 30yr yield (red)
So, in the current context, if the Fed were to cut rates to 1% amid tariffs passthrough and expansionary fiscal policy, what we will likely get is a surge in long term rates and inflation expectations. Therefore, mortgage rates would actually rise to new highs and eventually the Fed would need to hike aggressively and likely trigger a recession.
Anyway, all this Trump talk about the Fed and so on is just noise, so traders and investors should look through it.
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