FHFA Director Pulte calls on Powell to lower interest rates
On Monday, FHFA Director Bill Pulte called on Federal Reserve Chairman Jerome Powell to lower interest rates. His exact tweet was: “Jay Powell needs to lower interest rates – enough is enough. President Trump has crushed Biden’s inflation, and there is no reason not to lower rates. The housing market would be in much better shape if Chairman Powell does this.”
This is just the latest effort to influence Powell and comes after the Supreme Court ruled last week that Trump can’t fire the head of the Federal Reserve. There are three factors — all connected to the housing market — that explain why the White House, the Treasury Secretary and now the head of the FHFA are doing a full-court press on Powell to lower rates.
Higher rates are holding back GSE reform
After President Trump posted last week that he was giving “serious consideration” to releasing the GSEs from conservatorship, Treasury Secretary Scott Bessent went on Bloomberg to give more context. I wrote about the potential implications of taking Freddie Mac and Fannie Mae out of conservatorship, particularly in light of current mortgage rates and the 10-year Treasury yield, which are higher than the administration wants.
As Bessent noted, if the Trump Administration’s analysis concludes that releasing the GSEs will cause mortgage rates to head higher, they won’t start the process. Given the various priorities the White House is managing, deciding to transition Freddie and Fannie out of conservatorship — particularly with midterm elections approaching and ongoing challenges related to trade — could present significant risks. Lower mortgage rates can give the White House a better backdrop to go into taking Freddie and Fannie out of conservatorship.
Housing construction Is at COVID-19 recession levels
At the beginning of the year, I wrote about my concerns for homebuilders and new home sales if mortgage rates were to rise even more from their elevated levels. This is significant because housing data is critical to assessing if the economy is going into a recession. Monitoring trends among residential construction workers is important, as a decline in this sector can often signal that a recession may be approaching, as you can see in the chart below.
In the most recent jobs report, I noted a slight decrease in labor in this field, and builder confidence is currently at levels reminiscent of COVID-19. The current high mortgage rates impact the homebuilders’ desire and ability to build more homes.
Fighting a trade war is easier with lower rates
I recently went on CNBC to talk about how lower rates were the cure for tariffs. I say this because Trump saw how the U.S. economy was performing better even in an inflationary environment because rates were lower. Even when lumber prices were $1,500 per thousand board feet during COVID, new home sales and existing home sales were much higher because rates were lower. This is why the White House talked about wanting a lower 10-year yield, which means lower mortgage rates.
The trade war drama has made the bond market check the White House at times and the president believes it will be easier if rates are lower. This is why I think we might see a potential “shadow” Fed president, where Trump will showcase his next Fed President in a media tour to talk the markets into lower rates. This is something Bessent brought up in October of 2024.
Conclusion
It is not surprising that Bill Pulte tweeted out a lower rate message, as many close to the White House have expressed similar sentiments. The key question is: what actions will be taken in response?
Bessent plans to modify specific regulations to allow financial firms to hold a greater quantity of bonds, but the effectiveness of this move is still uncertain. The housing market can shift with relatively minor changes, such as mortgage rates approaching 6%, which could have a significant impact. However, if this approach does not yield the desired results, the president may consider alternative strategies, such as appointing a shadow Fed president. The 2025 housing market just got a lot more interesting with the developments in the past few days.