How Trump Will Impact Interest Rates

Trump's Influence

Nicole Lapin explores the complexities of Trump's promises to lower interest rates, highlighting his limited influence over the Federal Reserve. She explains that while Trump has expressed intentions to reduce rates, the actual decision-making power lies with Jerome Powell, the Fed's chairman, whom Trump appointed in 2018 1. Despite their public disagreements, Powell's position is secure until 2026, and he has a strong backing from Wall Street and political circles.

Trump isn't the decision maker when it comes to interest rates. Our guy when it comes to interest rates is Jerome Powell, AKA J. Powell, the chairman of the Federal Reserve.

--- Nicole Lapin

Lapin notes that Trump's influence is limited to pressuring Powell or announcing a successor early, but these actions may not significantly alter the Fed's course 1.

   

Interest Rate Mechanics

Understanding the mechanics of interest rates is crucial to grasping the broader economic implications. Nicole Lapin clarifies that the Fed rate primarily affects short-term interest rates, while long-term rates are more closely tied to bond yields 2. Currently, the Fed rate is decreasing, but bond yields are rising, indicating a divergence that complicates the impact on mortgage rates.

Mortgage rates usually trend with the 10-year bond yield more than the Fed rate.

--- Nicole Lapin

This divergence suggests that even if the Fed lowers rates, mortgage rates might not follow suit, especially if the Trump administration increases borrowing to fund its policies 2.