For those of you who do not like Mr. Trump, I am going to give you another huge reason: his election pushed rates way up!
I will explain why and whether they might fall again below. But first:
There are two things that hugely impact every American that they are clueless about:
- How much cheap energy impacts the economy overall.
and - How much deregulation impacts the economy overall.
Cheap energy is the lifeblood of an economy. The wealthiest countries ALWAYS have access to the most cheap energy. There are no exceptions. Opening up oil drilling and encouraging nuclear power access will be a huge boon to the economy – and Trump is promising to do both.
Deregulation largely drove the growth we saw in the 1980s, as transportation (airline, trucking, and rail) and energy costs absolutely plummeted. The deregulation of the finance industry brought capital to the tech industry too – sparking the chip and cell phone booms.
Note: I realize there are downsides to both of the above policies, but for the purposes of this blog, I am only focusing on what might drive growth.
3 Reasons Why Trump’s Election Is Pushing Rates Up
- Growth Stimulating Policies: Investors believe his policies will stimulate more growth, and rates go up when investors expect more growth. These policies include deregulation and increased energy production (discussed above), as well as tax cuts. Investors believe that private sector stimulus has a stronger impact on growth than pure government spending.
- Potential For Inflation: Some investors fear that Trump’s tariffs will be inflationary, while many other investors are simply afraid of the spending that might take place when one party has control of the House, Senate, and the presidency (like we saw when the GOP had control of all three in the early 2000s under Bush).
- Uncertainty: This is a point Alf Peccatiello made today. Investors aren’t sure what might actually happen, so they demand higher yields to compensate for more uncertainty.
5 Reasons Rates Might Fall Again
- Economy’s Weakness Remain: The labor market is very weak, as Danielle DiMartino Booth reminds us often, and is much weaker than we’ve been led to believe. The manufacturing sector is in a recession. And the banking and commercial sectors are on the brink of collapse.
- More Accurate Data; Janet Stops Helping: X is filled with examples of where official government data, e.g. jobs reports, appeared to be skewed in an effort to make the current administration look better. This will likely stop, and if more negative data surfaces, rates will fall. In addition, Treasury Secretary Janet Yellen was ostensibly spending and borrowing in a way that provided the maximum stimulus and liquidity at opportune times – and I suspect she will not want to help Mr. Trump, but that could just be me.
- China: The Chinese economy, despite many bright spots, is also teetering on collapse because of its real estate sector collapse. The sheer size of this disaster threatens the entire world economy for many reasons.
- Budget Cuts: This is a point Chris Whalen made on a recent podcast. If Trump, with the help of Elon, actually cuts spending and gets us closer to fiscal sanity, the bond market will love it and rates will drop.
- The October Effect Is Over: I’ve mentioned many times how rates almost always climb in October, and then fall afterwards. When Trump was elected in 2016 though, we did NOT see that happen and rates rose all the way through the end of the year before starting to fall.
When any of the above events might take place is anybody’s guess, but for now, we remain in a state of uncertainty and volatility.
Final Point: Can the Fed push mortgage rates lower if Mr. Trump demands it like he has in the past? No. The Fed can’t control long-term rates, as we’ve just seen over the last few months.
