Trump’s Re-Election May Push Mortgage Rates Beyond 10%:

Shanthi Rexaline | June 3, 2024

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Former Treasury Secretary Larry Summers, who is on the “inflation truthers” camp, said on Sunday there is a real risk of inflation spiking if Donald Trump wins a second term.

Trump Bad For The Economy? Trump’s re-election could mean the U.S. could see another bout of inflationary pressure, Summers told The Atlantic. “There has never been a presidential platform so self-evidently inflationary as the one put forward by President Trump,” he said. “I have little doubt that with the Trump program, we will see a substantial acceleration in inflation unless somehow we get a major recession first,” he said.

Incidentally, Summers was among the economists, who warned the [Joe] Biden administration of the risk of rising inflation when it approved a massive COVID-19 relief package in 2021. The former Treasury official now told The Atlantic that he wasn’t sure of the success of the policies of Biden and the Federal Reserve to bring inflation down to the central bank’s 2% target.

Summers, however, was more downbeat about a Trump term. Trump’s blueprint would make inflation worse, he reportedly said.

Among the components of Trump’s economic agenda that will likely have an upward thrust on inflation are “compromising the independence of the Federal Reserve Board, enlarging the federal budget deficit by extending his 2017 tax cuts, raising tariffs, rescinding Biden policies designed to promote competition and reduce ‘junk fees’ and squeezing the labor supply by restricting new immigration and deporting undocumented migrants already here,” Summers said.

Summers followed up with a post on X, formerly Twitter, in which he said it’s difficult to predict the timing and the precise dynamics. “But it is hard to imagine a policy package more likely to create stagflation than measures that directly raise prices (through tariffs), undermine competition, enlarge deficits, and excessively expand the money supply,” he added.

He further flagged the possibility of mortgage rates going past 10% under Trump. “There is a real risk during a Trump presidency that we would again see mortgage rates above 10 percent as inflation expectations rose and long-term interest rates increased,” he said.

See Also: Best Inflation Stocks

Why It’s Important: The 30-year fixed-rate mortgage rate rose to 7.05% in the week ended May 24 and all the other loan types also saw rate increases, according to weekly data released by the Mortgage Bankers Association. The 30-year mortgage rate is now at its highest level since early 2002.

Source: St. Louis Fed

The higher mortgage rate reflects the elevated Fed funds rate, which currently hovers at a 22-year high of 5.25%-5.50%. Consumer inflation, though having eased from the cycle peak of 9.1% in June 2022, remains stubbornly elevated. The April inflation report showed annual headline and core inflation of 3.4% and 3.6%, respectively.

Summers’ view of Trump’s policy likely being inflationary comes at a time when the American public is highly critical of Bidenomics — the term used to refer to the economic policy of the current regime. Most nationwide surveys show registered voters and the American public reposing increased confidence in Trump’s ability to handle the economy than Biden’s.

An FT-Michigan Ross poll held between late March and early April showed that 40% trusted in Trump’s ability to handle the economy compared to 34% who felt the same about Biden. About 20% said they trusted neither. Despite economic data painting a fairly robust economic picture, voters are a disgruntled lot, as they see a worsening of the overall economy and their personal financial situation.

The iShares TIPS Bond ETF (NYSE:TIP), an ETF tracking the investment results of an index composed of inflation-protected U.S. Treasury bonds, rose % to $ at $ in premarket trading Monday, according to Benzinga Pro data.

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