Why a Trump Win Could Push Your Mortgage Rates Higher

The 2024 presidential election has not yet been set, but former President Donald Trump’s economic proposals may already be impacting your wallet.

That’s according to Mark Zandi, chief economist at Moody’s Analytics, who posited on Tuesday that Trump, the Republican presidential nominee, had raised mortgage interest rates just by talking about his economic agenda. If so, it partly explains why mortgage interest rates rose — contrary to some experts’ expectations — in the weeks after the Fed cut its influential benchmark interest rate.

The theory goes like this: Trump has proposed increasing tariffs on imports, deporting large numbers of immigrants, and sharply cutting taxes, among other things. Many economists believe that these policies will lead to higher inflation. For example, a recent analysis by Oxford Economics showed that annual inflation, as measured by core PCE prices, would be 0.4% higher after a Trump victory than if Kamala Harris had won.

Mortgage rates are determined in part by financial markets and tend to rise when investors believe inflation will be high in the future. Although many polls show that next Tuesday’s election will be a bust, the odds of a Trump win have risen in political betting markets, possibly influencing traders who make decisions based on their expectations of future economic conditions.

“Investors take Trump at his word and believe that if he wins, it will lead to higher tariffs, immigrant deportations, and deficit-financed tax cuts in a full-employment economy, all of which will mean higher inflation and more government borrowing,” Zandi added. On the social media platform X. “The recent rise in mortgage rates is a clear indicator of what investors believe a Trump victory will mean for the economy and the country’s fiscal outlook.”

Mortgages vs. Fed

The average rate on a 30-year fixed mortgage last week was 6.54%, up from 6.09% the week the Fed announced its first rate cut since 2020, according to data from Freddie Mac. This hike added about $75 to the monthly mortgage payment for an average-priced home, which was already unaffordable for many potential buyers.

The rise was counterintuitive given that the Fed had just cut the benchmark federal funds rate — the rate that sets the cost of banks borrowing from each other — by half a percentage point.

The federal funds rate directly affects interest rates for credit cards and card loans, which are tied to banks’ prime interest rates. However, the relationship of the federal funds rate to mortgage rates is not clear, and they often move in anticipation of future Fed rate cuts rather than in response to them. For example, mortgage interest rates fell ahead of the Fed’s move to cut interest rates in September.

Specifically, mortgage rates tend to rise and fall along with yields on 10-year Treasury bonds, which have risen in recent weeks. Some economists said the rise was driven in part by Trump’s chances of winning the election.

Another influential factor is that recent economic reports show that the economy is performing better than forecasters expected, with businesses hiring more people and consumers spending more money than expected. A healthy economy means the Fed may be in a hurry to cut interest rates than previously thought.

However, in the long run, a lower federal funds rate may eventually lower mortgage interest rates. As long as inflation continues its recent cool trend, the Fed is likely to gradually lower interest rates over the coming months. For example, forecasters at Fannie Mae expect the average 30-year mortgage to fall to 6% at the end of the year and 5.6% by late 2025.