I recently came across some apparent quotes from Treasury Secretary Scott Bessent regarding mortgage rates.
One social media post on X claimed he said we were going into an easing cycle and that we “will see a massive decrease in mortgage rates.”
The first part of the statement is true. He actually said that. The second part I couldn’t find. Perhaps it was said elsewhere but it seems highly unlikely.
He was on Fox Business with Maria Bartiromo yesterday discussing a variety of topics, including Fed rate cuts and interviews for a new Fed chair.
Bartiromo asked him directly if he thought the Fed cuts would bring down mortgage rates and he waffled and rambled like no other.
Bessent’s Longwinded Answer Regarding the Fed and Mortgage Rates
On Mornings with Maria yesterday, Bartiromo asked: “Do you think it’s a certainty that as the Fed lowers rates that you’re actually going to see a real impact on, for example, mortgage rates.”
Treasury Secretary Scott Bessent responded by saying, “I do believe that we are seeing, uh, will see a substantial drop in inflation, I think that if the housing numbers are done through imputed rent, that we’re gonna see, they run on about a six month lag, everything that President Trump is doing in terms of deregulation, which I think is the underrated third leg of his economic policies, that’s all disinflationary, and you know, we’ll see what happens with this AI boom…”
That’s quite a mouthful to a yes or no question. And he didn’t even answer the question. Well, at least not directly, as everyone would have liked.
He then went on to talk about the advent of the railroads and the “wonderful inflationary growth” that came with it, remarking that the same thing took place in the 1990s.
Aside from rambling on and on and even ending his thought on a possible upcoming “AI boom,” he basically said if inflation comes down, mortgage rates will come down too.
So there is an answer in there, somewhere, if you look hard enough and read between the lines.
But perhaps most importantly, he dispels the myth that the Fed controls mortgage rates.
What really determines mortgage rates is economic data, such as inflation and labor market conditions.
Inflation is the enemy of low mortgage rates, and it’s been a main driver of higher mortgage rates the past few years.
It was exacerbated by the end of Quantitative Easing (QE), in which the Federal Reserve bought trillions in residential mortgage-backed securities (MBS) to bring down rates.
Of course, all those easy money days before, after, and during the pandemic led to some of the worst inflation we’ve seen in decades.
And we’ve been paying the price since mid-2022 via markedly higher mortgage rates.
The Trump Admin Has Made It a Priority to Lower Mortgage Rates
Since Trump got elected, his administration has made it a priority to lower interest rates to get the economy (and housing market) moving again.
There’s just the issue of that creating another period of easy money, which could re-inflate prices and lead to another ugly wave of inflation.
The reason the Fed hiked 11 times in succession was to combat out-of-control inflation. It was only when inflation readings began to cool that the Fed made their pivot.
Then there’s labor, which caused mortgage rates to spike last September right after the Fed coincidentally made its first rate cut of this easing cycle.
That confused a lot of people because many expected mortgage rates to go down after the Fed cut.
What many failed to recognize was that the 30-year fixed fell a ton leading up to that cut, and so at least with regard to Fed policy, it was already baked in.
The Fed just cut again this September and mortgage rates bounced higher as well, though not because of a hot jobs report. It may have simply been a sell the news moment.
That key jobs report comes again next Friday and if it does somehow come in hot again, well, you might see a similar situation where mortgage rates start ascending again.
But before that happens, we have the Fed’s preferred inflation gauge, the PCE report, to be released tomorrow.
Bessent Says Fed Has Been Too High for Too Long
Bessent also told Bartiromo that, “Clearly the Federal Reserve has been too high for too long and we’re going into an easing cycle here and I’m not sure why Chair Powell has backed up a bit here.”
He called for “at least” 100 to 150 basis points in cuts by the end of this year, while the expectation is for 50 bps at best.
He has to know that the Fed is continuing to grapple with an unclear picture on inflation, partially due to things like tariffs the admin implemented, and even an uncertain path for labor.
Bessent did note that we’ve had nearly two million downward revisions in the labor market, and jobs data has indeed been ugly of late.
That’s why mortgage rates are a lot lower today. But if labor and inflation don’t continue to show signs of cooling, it won’t matter what the Fed does.
It’s a tricky situation for Bessent and the Trump administration because they want lower rates, but not at the cost of the economy.
How they manage to lower rates while also making the economy boom remains to be seen.
(photo: Rebecca Siegel)
