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During a virtual speech at the World Economic Forum in Davos this morning, President Donald Trump said he would “demand that interest rates drop immediately.” This marks his second request for lower rates, which are key for his economic agenda.
In his remarks, he also said other countries should follow suit and lower their interest rates. This push to get global interest rates lower makes sense for his agenda and is something we last saw in the aftermath of the Great Financial Crisis. We expect bond yields and the U.S. dollar to increase if the economy thrives. Contrast that to China, for example; where its economy is struggling so its rates are falling dramatically. I discussed this issue on the HousingWire Daily podcast on Nov. 7, where I outlined the reasons why President Trump is advocating for lower rates.
Trump’s economic policies would work more effectively if he doesn’t have to worry about a housing recession, and he can export more goods from the U.S. if the dollar goes back down. I think this call for lower rates by President Trump is like a high school basketball coach working a referee to eventually get the calls he wants, especially if construction labor is falling. In this case the referee is the Federal Reserve.
2025 Wild Card?
I wrote this article before the new year, discussing how the residential construction sector is the wild card for 2025. Traditionally, in an economic cycle, housing permits decline, housing starts decrease, and as mortgage rates remain elevated, homebuilders often begin laying off employees. This pattern has been observed prior to every recession in recent history.
In the current housing cycle, however, factors such as a backlog of orders, extended project completion times, and rate buydowns have allowed residential construction workers to remain employed. Nevertheless, overall completion data is now declining as the backlog is being worked through.
The chart below is very clear with the relationship between the housing market and the economic cycle. Also, let’s remember the manufacturing sector lost jobs in 2024
Now, my 2025 forecast had a peak 10-year yield at 4.70% and mortgage rates at 7.25%; we basically got there earlier for mortgage rates before falling just a tad. Also, the 10-year yield recently hit a high of 4.81% in 2025, currently at 4.64%
The forward-looking sales data from homebuilders dropped by 6 basis points, marking the first real decline in some time. This decline can be linked to mortgage rates approaching 6% and remaining steady, which could alleviate many challenges for President Trump and help home sales rebound.
The U.S. dollar is becoming too strong again. If the president wants to increase exports, he will need to lower the dollar’s value. One way to achieve this is by reducing interest rates. This doesn’t necessarily mean that the dollar has to drop significantly, but returning to its previous trading ranges is something the president hopes to see, and his economic team supports this as well.
I often joke that if the U.S. dollar reaches 115, I will dress as the dollar for Halloween, as that would create a Freddy Krueger nightmare for world economies. You may recall that in 2022, when the dollar was trading at 112, the world went into a panic. London was on the verge of losing its entire pension funds, the Bank of Japan had to intervene and the IMF was urging the Federal Reserve to stop raising rates.
Overall, I am not surprised that the President is requesting lower rates. As I outlined in my Nov. 7 article, higher rates and a strengthening dollar can pose challenges for him. Both the 10-year yield and the U.S. dollar have been rising simultaneously, so getting lower rates is essential, but easier said than done.
