Showdown: The White House vs the Fed on mortgage rates by Logan Mohtashami for HousingWire

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The stage is set for a showdown in the U.S. housing market. On one side, we have the White House and the Treasury Secretary rallying for lower mortgage rates to ease the burden on consumers. On the other side, the Federal Reserve is standing firm, arguing that lower mortgage rates will make it harder to balance the economy.  

So, who will emerge victorious in this high-stakes conflict? Or could an unforeseen third party swoop in and broker a resolution? As tensions rise, the fates of homebuyers and the housing market hang in the balance.

The unwanted party guest: A recession

If the economy tumbles into a recession, the opinions of the White House or Federal Reserve will take a back seat — the real drivers will be falling bond yields and mortgage rates. However, just how much they drop is mainly in the hands of the Fed, which controls about 65% to 75% of the shifts in the 10-year yield and mortgage rates.

Since 2022, we’ve experienced four significant growth scares in economic data, and each time, these scares have sent the 10-year yield spiraling down, pulling mortgage rates along with it. It’s a rollercoaster ride that is common every year, but mortgage rates haven’t broken 6% yet.

I discussed the recent negative GDP data in today’s episode of the HousingWire Daily podcast to bring some clarity on the softness of the economic data since the start of the year. And in December, I wrote about previous economic recessions and highlighted the economic risk to the housing market tied to residential workers.

Since mortgage rates have surpassed 7%, builders have faced increased challenges, and housing permits were already at recession-level numbers. Additionally, builder confidence has declined not only due to higher rates but also because of concerns about tariffs.

Jobs Friday is coming up, and this is why we are always mindful of what’s happening to residential construction workers.

So before all the drama of 2025 started, I was mindful of the damage higher rates can do at this stage of the economic cycle. This is one reason I believe the White House wanted lower rates.

The Federal Reserve’s stance

Let’s break it down: the Federal Reserve has turned a blind eye to the housing market for quite some time now. We’re stepping into the fourth year of the lowest home sales ever recorded in history when you consider the workforce.

While the existing home sales market doesn’t fit into the Fed’s dual mandate, the new home sales sector definitely does. But here’s the silver lining: since the Fed has not been pushing for pro-housing growth policies, any signals suggesting they’re interested in boosting home sales would be a significant win. It’s an intriguing time to watch the Fed’s next moves in this area. This will be brought up in the next Fed meeting since there is a difference between the White House economic team and the Federal Reserve on the topic of lower mortgage rates.

People ask me whether the Fed can buy mortgage-backed securities to lower rates, given that the spreads aren’t normalized yet. The spreads have improved but are not back to normal, as you can see below.

The short answer is no; the Federal Reserve refuses to get back into the marketplace unless we are back at Zero Interest Rate Policy again, so don’t count on this. We can maybe get some regulation capital relief allowing banks to own more MBS on their books. However, don’t look for the Fed to be buying MBS unless we are in a full-blown recession. 

The spreads tend to improve significantly when yields rise, but I don’t expect them to improve with a significant drop in the 10-year yield in 2025. My forecast for 2025 indicates only a 0.27% to 0.41% improvement, using the baseline average of 2.54% in 2024.

Currently, the behavior of the spreads is normal, especially considering a key factor: the Federal Reserve is still implementing quantitative tightening (QT). This is a significant difference compared to the past five decades. In 2024, there was considerable debate, with many market participants believing that spreads wouldn’t improve while the Fed was conducting QT. However, that’s not how spreads operate when starting from elevated levels. If the Fed were to halt QT, that would present a different situation altogether, but since they haven’t done so yet, I did not consider that in my analysis.

The White House’s position

Let’s keep this simple as well: the White House has an agenda to lower mortgage rates. This has been in the works since President Trump won, as we can see from comments made by those who work for him, now and in the past. We have been discussing this on the HousingWire Daily podcast for months now.

My take from the start was that the White House didn’t want to deal with a housing recession and lower rates would solve some issues for builders. However, after listening to everyone talk about the need for lower rates, I think the Trump administration’s internal surveys might show that lowering mortgage rates is a bigger issue for American consumers than what most people think — this might explain the all-out blitz to get the 10-year yield lower in 2025.

Now, the Fed might not buy MBS; however, since Freddie Mac and Fannie Mae are still in conservatorship, the FHFA could direct the GSEs to take some of their extra profits to push down the mortgage spreads. That is the only thing I can think of that the White House could do that hasn’t already been talked about.

Final conclusion 

The White House appears eager to lower mortgage rates to fuel housing growth, but the Federal Reserve is less concerned about this objective. While a recession might naturally bring down rates, we currently see the 10-year yield hovering at 4.20%. This scenario is shaping up as a familiar response to growth worries, echoing patterns we’ve witnessed consistently since 2022. 

Here’s my rule of thumb: if the 10-year yield dips below 3.80%, that’s a sign of serious recession fears in the bond market. The key level I’m watching is 3.37% — the legendary Gandalf line, if you will.

So, who will come out on top in this economic tug-of-war? We don’t yet know, but let’s take this journey together and let the economic data guide us for the insights we need.

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