Firing Jerome Powell Won’t Benefit Mortgage Rates

Once again, there have been reports of President Trump threatening to fire Fed Chair Jerome Powell.

But like the last time this happened, Trump has denied that he plans to oust him, calling it “highly unlikely” unless there’s “fraud.”

The latest report of a possible early dismissal was pinned to a meeting at the Oval Office Tuesday evening where Trump asked a room full of lawmakers if he should do it.

After apparently gaining their approval to proceed, he said he’d do it, but this morning, denied it as he has in the past.

The irony here is mortgage rates would likely be higher if Trump fired Powell!

There Are No Shortcuts to Lower Mortgage Rates

When it comes to mortgage rates, we just have to be patient. Sure, we’d all love lower interest rates on our credit cards, our HELOCs, and our mortgages (for those who missed out on the 2% rates from 2021).

But given we just went through one of the worst bouts of inflation in decades, it wouldn’t bode well for the long-term health of the economy to slash rates again.

Ultimately, we’re now paying the price for the many years of easy money, further exacerbated during the pandemic when another round of QE took place.

We have to experience some pain after a decade plus of loose monetary policy to right the ship.

The housing market needs it as well. The housing market tipped in favor of sellers since the early 2010s in most markets nationwide.

It wasn’t until this year that buyers finally regained the upper hand. And even then, it’s not like there’s a ton of high quality for-sale inventory out there, nor are home prices exactly on sale.

Instead, some sellers are coming to terms with negotiating a bit on price, or offering seller concessions to entice buyers.

So what needs to happen is happening. Inventory is finally rising, and sellers are outnumbering buyers, which could lead to some much needed home price relief.

You Can’t Cut Rates If Inflation Isn’t Under Control

The thought of lowering mortgage rates when such a move isn’t warranted would simply create a bigger mess than we already have.

There’s a reason the Fed raised its own key policy rate 11 times from early 2022 until mid-2023, before finally easing a bit in 2024.

Inflation was out of control and the housing market was equally out of control, with bidding wars rampant and inventory scarce. Home price appreciation was also clearly unsustainable.

We now have the worst home buyer affordability in decades.

Can the Fed ease up a little bit though? Sure, and the funny part is they said they would have if not for Trump’s tariffs.

Powell noted last month they’d be cutting if not for the “significant inflation will show up from tariffs.”

So you’ve got the administration exacerbating matters, then asking for rate cuts. Had they simply not gotten into trade wars, there’s a good chance the Fed cut would have cut rates by now.

Instead, we’ve got a murky outlook due to the many tariffs imposed on countries from around the world, with some yet to come in August. And new ones introduced out of the blue on a weekly basis.

This has made it very difficult for the Fed to do its job, and perhaps more importantly, cut rates.

The Fed Only Controls Short-Term Interest Rates

There comes a certain point where the admin has to accept it can’t have it all.

You can’t enact policies that possibly increase inflation while also asking for rate cuts, which could raise inflation expectations.

What you need is a real reason to lower rates, which ultimately would only come from supportive data.

That data might be disinflation, which was happening until the tariffs surfaced. Or rising unemployment, which isn’t happening enough to warrant big cuts (yet).

Absent those things, Fed rate cuts just aren’t necessary. And it’s important to note that the Fed only controls short-term rates via their fed funds rate, not long-term rates like the 30-year fixed.

Their policy moves can indirectly lead to lower long rates, but only because the data said so first.

So really it’s the data you have to look at if you want to get an idea for where mortgage rates might go.

If the data is showing falling inflation and rising unemployment, long-term bond yields like the 10-year will be falling ahead of any Fed rate cut.

And so will 30-year fixed mortgage rates. Then you’ll see the Fed cut, after the move lower has already taken place.

This is exactly what happened in 2024. The 30-year fixed fell nearly 150 basis points, from around 7.50% to nearly 6% between April and September.

It did so because there were expectations the Fed was going to pivot and begin cutting rates as opposed to lowering them.

But the Fed was only planning to do that because the economic data supported it!

Bullying your way to rate cuts isn’t a sound strategy, and if anything, could even result in mortgage rates moving higher.