WASHINGTON — As a candidate, Donald Trump promised to relieve consumers of high interest rates. As president, doing so will likely be a slow process largely outside of his control.
Trump repeatedly said during the campaign that he would bring down interest rates without elaborating on how. He has suggested the president should have a say in determining rates set by the Federal Reserve and publicly berated the central bank and its chairman, Jerome Powell, for not lowering rates sooner.
But while Trump has put a lot of emphasis on the Federal Reserve as a way to reduce the interest paid by consumers or businesses, the rates on mortgages and other longer-term loans are outside of any one person’s or institution’s control. Instead, those rates are largely determined by the bond market, where investors are looking at a range of long-term risks, like the likelihood of high inflation returning, prospects for economic growth and the United States’ ability to pay back its debts in the decades to come.
“I think macro trends are way more important,” said Kent Smetters, a professor of business economics and public policy at the University of Pennsylvania Wharton School. “I just don’t think the Federal Reserve has a lot of control like they used to.”
The Federal Reserve plays a part in influencing interest rates by setting the amount that banks have to pay short term to borrow money from each other in order to carry out their daily business. That amount can trickle down to how much lenders then charge consumers for a loan, but it isn’t always the case.
Mortgage rates rose after the Federal Reserve cut rates in September for the first time since the pandemic, and despite the Fed cutting rates again on Nov. 7, mortgage rates are expected to continue to rise in the coming days based on the trends in the bond market, said Ralph McLaughlin, senior economist for Realtor.com.
“The idea that the president can directly influence the Fed rate is a little unrealistic, but the broader policies, or expectations of policies, have a much more direct effect,” said McLaughlin.
Trump has no direct control over the interest rates set by the Federal Reserve, which is determined by a committee that includes seven members appointed to 14-year terms along with five regional Reserve Bank presidents. Under the current law, the president can’t fire Powell or any member of the Fed’s Board of Governors without “cause,” so removing any of those members because of a disagreement over interest rates would be challenged in court.
Trump has previously tried to influence the Fed with his rhetoric. During his first term, Trump said Powell, whom he appointed in 2018, was a bigger enemy to America than China’s President Xi Jinping and posted on Twitter that Powell had a “horrendous lack of vision” and “no ‘guts,’ no sense, no vision!”
Powell said during remarks on Nov. 7 that if Trump asked him to resign, he wouldn’t do so, and that it wasn’t permitted under the law for Trump to fire him or any members of the Federal Reserve board.
While Trump has acknowledged that he likely doesn’t have the power to set rates or fire Powell, he’s indicated he isn’t going to stop voicing his views on what the Fed should be doing.
“I think I have the right to say, ‘I think you should go up or down a little bit,’” Trump said at the Chicago Economic Club last month. “I don’t think I should be allowed to order it, but I think I have the right to put in comments as to whether or not the interest rates should go up or down.”
Trump will eventually get an opportunity to start remaking the board in May 2026, when Powell’s term will expire. Trump said in February that he wouldn’t reappoint Powell to another term. Whomever he nominates as Powell’s replacement will have to be confirmed by the Senate, which Republicans are projected to control.
To try to push for change at the Fed before 2026, Trump economic adviser Scott Bessent has floated the idea of creating a “shadow” Fed chair by appointing Powell’s replacement well before his term is up, according to an interview with Barron’s last month. While that person wouldn’t have the power to make decisions, their commentary could signal to the financial markets where the body is going, said Bessent, chief executive of the hedge fund Key Square, whom Trump has called “one of the most brilliant men on Wall Street.”
Outside of any actions Trump may take with the Federal Reserve, interest rates are expected to begin ticking down later this year if inflation remains under control, economists have projected.
Trump’s own policies, though, could drive rates higher if they signal a return to higher-than-normal inflation. Trump has proposed putting sweeping tariffs on all goods imported into the U.S., including a 60% duty on imports from China. If past tariffs are any indication, that would drive up the prices consumers pay for goods and could trigger another wave of inflation that would push rates higher. Significant tax cuts that put more money in people’s pockets could also contribute to higher inflation.
“Anything that’s going to put money in consumers’ pockets, whether it’s tax breaks, tax credits or other types of stimulus, does have the potential of driving prices higher, which would mean higher mortgage rates,” said McLaughlin.
One of the most effective ways to lower rates over the longer term will likely be keeping inflation at around its current level of 2% to 3% and for the U.S. to take steps to reduce its deficit and rein in spending, which would make the bond market more favorable to lenders, said Smetters.
“Right now, capital markets are making this bet that eventually Congress and the president are going to get their act together to eventually stabilize the debt-to-GDP ratio,” said Smetters. “As soon as they stop believing that to be true, then you’re going to see the 30-year mortgage really pop up.”
But lowering rates in the short term to levels seen during pandemic is unlikely unless there is a major economic downturn.
“There aren’t a lot of policies that the president has at his disposal that can really lower rates,” said McLaughlin. “Other than policies that might be damaging to the economy itself.”
