Immediately after the election, there was a lurch.
Yields on the 10-year Treasury jumped by 21 basis points in a few hours. CRE investors had already been trading their interest rate cap extensions to take risk off the table as much as possible.
The 10-year has since returned to the levels before the election. However, the question remains how the changing political landscape will affect the Fed. Historically, presidents and the Fed have had turmoil in their relationships. Donald Trump has heavily criticized Chair Jerome Powell both during his previous administration and now. And Powell on Thursday, after the FOMC meeting, made some things clear, even somewhat delicately phrased.
When asked by the press if he would step down if Trump asked him to resign before the end of his term in May 2026, Powell said, “No.” He added that the president lacked the legal ability to remove top Fed officials. As Trump has said he thinks he should have more influence on a body that is supposed to be politically independent, this sets up the potential for conflict.
“I would expect Trump’s election to be a bad thing for those who are rooting for interest rate cuts,” Jon Siegel, co-founder and chief investment officer for Railfield Partners, told GlobeSt.com. “Powell says that their decisions are data driven and so I would expect them to continue on their current path of easing rates in the short term, but Trump’s proposed policies could drive more inflation and so I would expect the fed to be more hawkish on rates in the long run.”
The proposed policies include a proposed permanent extension of the 2017 tax cuts, as well as tariff increases that, despite claims to the contrary, are regressive forms of taxation paid for by domestic recipients, not foreign shippers, of goods. The recipients pass on the tariff expenses in the form of higher prices.
“As for future rate decisions, I expect steady rate cuts through 2025 moving towards a level close to 3.50%, but the Fed will likely remain ‘data dependent’ in its decision-making,” Eric McAlley, assistant teaching professor of finance at Quinnipiac University, told GlobeSt.com. “While these cuts will begin soon, consumers shouldn’t expect significant relief in shorter-term borrowing costs until mid-2025. As for longer-term mortgage rates, they will likely remain flat to higher over the next year.”
Ultimately, what could make the Fed more hawkish with a Trump White House is policy. But there is often a difference between talk on the campaign trail and what an administration actually does.
“As for whatever policies Trump brings into the economy (taxes, tariffs, etc.), they would be assessed in the context of the economy’s performance at the time when these policies are put in place, not when they are proposed,” wrote Steven Blitz, managing director of global macro and chief U.S. economist at GlobalData.TS Lombard. “As for what policies may be enacted and to what extent, Powell was clear: ‘We do not speculate, we do not guess, we do not assume.’”