Why a Trump win could send your mortgage rates higher

The 2024 presidential election is still undecided, but former President Donald Trump's economic proposals could already be affecting your wallet.

That's according to Mark Zandi, chief economist at Moody's Analytics, who theorized Tuesday that Trump, the Republican presidential candidate, drove up mortgage rates simply by talking about his economic agenda. If so, it would partly explain why mortgage rates have risen – contrary to some experts' expectations – in the weeks since the Federal Reserve cut its influential benchmark interest rate.

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

Mortgage interest rates are set in part by financial markets and tend to rise when investors believe inflation will be high in the future. And although several polls suggest next Tuesday's election is a failure, Trump's odds have increased in the political betting markets, potentially influencing traders who make decisions based on their expectations of future economic conditions.

“Investors are taking Trump at his word and believe if he wins it will lead to higher tariffs, immigrant deportations and deficit-financed tax cuts in a full-employment economy, all of which means higher inflation and more national debt,” Zandi wrote on the social media platform X “The recent rise in mortgage rates is a clear indication of what investors believe a Trump victory would mean for the country’s economy and fiscal outlook.”

Mortgages against the Fed

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

The increase was counterintuitive considering the Fed had just cut its key interest rate by half a percentage point – the rate that determines how much it costs banks to lend to each other.

The key interest rate has a direct influence on the interest rates for credit cards and card loans, which are tied to the banks' key interest rates. However, the relationship between the base rate and mortgage rates is not so clear-cut, and it often moves in anticipation of future rate cuts rather than reacting to them. For example, mortgage rates fell before the Fed cut interest rates in September.

In particular, mortgage rates tend to rise and fall in tandem with 10-year Treasury yields, which have risen sharply in recent weeks. Some economists said the rally was fueled in part by Trump's perceived chances of winning the election.

Another factor at play is that recent economic reports show the economy is doing better than forecasters expected as companies hire more people and consumers spend more money than expected. A healthy economy means the Fed may be in less of a hurry to cut rates than previously thought.

However, in the long term, a lower fed funds rate could ultimately lead to lower mortgage rates. As long as inflation continues its recent cooling trend, the Fed will likely cut interest rates gradually in the coming months. Fannie Mae forecasters, for example, predict that the average 30-year mortgage will fall to 6% at the end of the year and to 5.6% by the end of 2025.