‘History shows independence is what keeps inflation expectations anchored’
The immediate unpredictability that would likely arise from a Fed that moves in tandem with the president’s views on interest rates would stir jitters in financial markets, according to Zack Simkins (pictured, top right), managing director of mortgage lender Vaster.
“Markets don’t like uncertainty,” he told MPA. “Even if the Fed funds rate stays the same, questions around Fed independence can push up Treasury premiums and widen mortgage spreads. That pressure can drive mortgage rates higher in the short term.”
Trump has repeatedly claimed this year that the Fed’s funds rate needs to be far lower, even sending a letter to chair Jerome Powell indicating how deeply the central bank should cut.
Greater presidential control over the Fed could – in theory – create faster coordination between fiscal and monetary policy, Simkins said. “But history shows independence is what keeps inflation expectations anchored, and that is what helps keep long-term rates lower over time,” he added.
Ultimately, though, more than political turmoil will determine where mortgage rates are headed, even if the Trump-Fed tussle escalates further.