President Trump may want a basic rate by the name of consumers, but it is certainly practical for national debt too

It is true that the housing market stops. And at a given time, a lower basic rate could improve mortgage offers made to potential buyers and the launching activity of the sector.

“Could someone please inform Jerome” Too late “Powell that he hurts very badly on the housing industry?” The president wrote on Truth Social this week. “People cannot get a mortgage because of him. There is no inflation, and each sign points to a decrease in major rate. “Too late” is a disaster! ”

The pressure is expected to increase over the weeks, with the next Fed basic rate meeting scheduled for September – and possible advice to come to this week Jackson Hole symposium.

Likewise, in July, he wrote: “Housing in our country is lagging behind because Jérôme” too late “Powell refuses to reduce interest rates.

While Trump’s pressure on Powell was not popular with Wall Street, launching the battle on behalf of consumers is more politically pleasant to taste. While Trump leads with the advantage for consumers, economists focus on the point country Also pays more due to Powell’s refusal to capitulate his requests.

This is what can be at the heart of the White House Crusade against the current basic rate, according to experts, because if the Federal Open Market Committee (FOMC) made the loan cheaper for everyone, it would include the government.

The White House will be well aware of this fact, in particular in an environment where the fiscally conservative republicans will shiver the national debt of $ 37 billion from Uncle Sam.

Of course, Trump’s motivation can be twofold: he may want to promote economic activity and also lower his own general costs.

“It’s both,” said Professor Joao Gomes, from Wharton Business School at the University of Pennsylvania Fortune In an exclusive interview. “I don’t know how to weigh these two … but the latter is incredibly important. I think they are very aware of this. The image of the budget would be much better if the interest rates were 2.5%, 2%, 1% – it would seem very, very different. ”

In 2024, the average interest rate paid on the American loan was 3.32%. Last month, it cost 1.013 Billion of dollars to maintain the loan, around 17% of federal expenses for the financial year.

According to the Treasury data seen by FortuneThe interest accumulated on cash tickets in July only $ 38.1 billion. Add to these $ 13.9 billion in interest on treasury bonds, $ 2.85 billion on floating treasury rate tickets (FRN) and a total of $ 6.1 billion on assets of securities protected by treasury inflation (TIPS). The invoice is alarming: the total amounts to $ 60.95 billion for the month.

Professor Gomes said that lowering these rates is “incredibly important”: “This could be more important than the impact that it would have on growth”.

The mortgage question

The involvement of President Trump according to which a basic rate lower than the launch of the housing market is not a fact, said professor of the University of Columbia, Yiming Ma FortuneBut that could relieve a certain tension for the “locked” owners.

Mortgage rates are partly based on the basic rate of the country, but over a much longer period than Fed changes to month. This means that a reduction of 0.25 pb is unlikely to make a significant difference, said Professor Ma. However, lenders may consider a potential reduction as a sign of a regime change in monetary policy, indicating that future rates could continue to lower, which may have a significant impact on the rates that lenders can offer.

Mortgage offers take into account much more than the Fed, Professor MA explained: “Banks will charge a bonus, and that the premium depends a lot: how they think that the economy takes place, what is the probability of defect, how the reality is (the applicant’s connection.

“I think in particular that the environment in which we are at the moment is a fairly high uncertainty and even if you get a drop in rate … There is still a long way to go until the market thinks that we are going – in the longer term – a stronger interest in accessories or policy rates, and that there will be a long way to go.

Indeed, when the Fed reduced rates last September by 50 bp, the average mortgage rate of 30 years has actually increased by the Federal Reserve of St Louis. “It seems that in this environment that mortgage rates can zig even when the Zags Fed,” said Jeff Ostrowski, bank analyst Fortune. “There is no clear link between the reference rate of the federal reserve and mortgage rates.”

That said, a lower basic rate can point out to consumers that a lower rate environment is underway. This added Ostrowski, could relieve part of the locking effect where the owners do not want to move houses because their fixed longer term mortgages are fixed at a rate offered in a previous period of lower interest. Seeing rates drop could promote activity and encourage people to start looking at the market.

Would consumers benefit or not?

In addition to freeing some tension on the housing market, there are clear advantages for certain demographic data with regard to lower prices, Professor MA added. There would be an “immediate relief” for people living “pay check at the pay check” and based on credit cards if the rates were lowered lightly (and especially if they continued to do so), the economist added.

According to a study by the Fed of St Louis, around 27% of people in the 10th lower percentile have a credit card and 40% of those of the second thoroughly. In the third centile, around 50% of people had credit cards they needed to pay, representing a significant part of the population.

But consumers are not necessarily savers or expenses: many will benefit from a lower rate on the side of the credit card, but suffer from their savings. The Fed said this year that 59% of people had savings accounts and benefited from higher rate yields.

“Financial institutions are in fact very fast to pass on savings prices reductions,” observed Professor MA, with Ostrowski echoing: “I have a high yield savings account and it is like the FED movements, I receive an opinion saying” Your rate has simply changed “, so it seems that variable rates move fairly quickly.”

The net impact on consumers is an “washing” added Ostrowski: “I have the impression that the Americans have moved so much in the storage of the wealth they have on the stock market that … it does not seem that we hear the same outcry of retirees when the rates drop.”

“It is difficult to say that there is a real winner or a loser because most Americans are consumers and investors, they are spenders and savers,” he added.

Why would the government benefit from it?

If the cost of the loan is cheaper for all those who do not only mean businesses and consumers, this also means the government.

As a general rule, when interest rates are lower, the same applies for the yields of the treasury (public debt and the interests it pays to lenders to serve the debt).

This has not always been the case, in the past year, for example, yields have climbed when the base rate lowered. This was due to a range of factors, wrote JP Morgan, including growth, economic uncertainty and questions about the question of whether the September 2024 Cup would mean a change in the wave of monetary policy (Spoiler alert: this was not the case).

But generally, lower interest rates benefit from the government’s net profit because it can issue a new debt to a lower bonus to maintain the loan.

If it is difficult to attribute a “weight” to Trump’s motivation for voters or his administration, Professor MA said that “both can be true”. A lower basic rate softens “borrowing for consumers, it will relieve the pressure for companies to borrow it, which will stimulate companies and some of them will be obvious on the stock market. These are all important economic indicators for any country – this is certainly true.

“It is also true that consumers and businesses are not the only ones to borrow … The American government borrows a lot at that time, and certainly the interests of the US Treasury will be affected by the interest rate.”

The expert also pointed out that the cheaper borrowing net for the government may not be at all levels: “We have cash flow bills that mature during the year, or three months, six months, horizons at 12 months. We are not also very long in the long term. ”