The Media Research Center recently posted an image comparing the change in U.S. mortgage rates over the course of Donald Trump’s presidency to the change thus far in Joe Biden’s term. According to the image, mortgage rates decreased from 4.09 percent to 2.77 percent between January 19, 2017, and January 21, 2021, the time of Donald Trump’s term in office. Since Biden took office, however, the post says mortgage rates have increased from 2.77 percent to 7.09 percent.
The Media Research Center’s calculations rely on 30-year fixed-rate statistics pulled from Freddie Mac’s Primary Mortgage Market Survey, which surveys lenders weekly on their most popular mortgage products. By all accounts, the statistics cited in the post are correct, and accurately reflect the changes in 30-year fixed-rate mortgage rates under Trump and Biden’s respective administrations. That said, the post offers no elaboration on how and why mortgage rates have changed over the years.
What influences mortgage rates?
Mortgage rates are highly sensitive to changing economic conditions. Many lenders use the yields on 10-year U.S. Treasury notes as a general reference for rate changes, and increases in inflation and the federal funds rate—the interest rate targeted by the Federal Reserve at which commercial banks lend and borrow reserves from each other overnight—both generally contribute to higher mortgage rates overall.
When the country experiences inflation beyond the Federal Reserve’s current 2 percent average target, adjusting the federal funds rate is the Federal Reserve’s primary means of slowing the pace of price increases throughout the economy. By raising the federal funds rate, the Federal Open Market Committee is essentially making it more expensive for financial institutions to borrow money. This cost is then passed on to consumers in the form of higher retail interest rates—including those on mortgages.
So, should Biden be blamed for increased mortgage rates?
Because the inflation rate influences mortgage rates both directly and indirectly, the extent to which Biden can be blamed for mortgage rate increases depends on how responsible he is for the overall rise in inflation during his presidency.
Inflation—as commonly measured by the Bureau of Labor Statistics’ Consumer Price Index (CPI)—hit 9.1 percent over the 12 months ending June 2022, the largest 12-month increase in more than 40 years and significantly higher than the 1.4 percent measured at the end of the Trump presidency. In a February 2022 piece for National Review, Michael Strain, an economist with the American Enterprise Institute, estimated that about 3 percent of the then-7.5 percent annual inflation rate could be attributed to the Biden administration’s American Rescue Plan (ARP), which appropriated $1.9 trillion in spending on measures including additional personal stimulus checks, extended unemployment insurance, and increases to the Child Tax Credit, Earned-Income Tax Credit, and Child and Dependent Care Tax Credit. “It’s important to note the considerable uncertainty around that estimate,” Strain emphasized. “I can produce estimates that are both higher and lower than three percentage points. But that magnitude is in the midrange of reasonable estimates.”
The spending signed into law by President Biden may have exacerbated existing inflationary pressures, but prices were likely going to rise somewhat due to structural forces caused by the pandemic no matter how Biden responded. COVID-19 caused a number of supply chain disruptions, which the Federal Reserve Bank of St. Louis found to have a sizable effect on price levels for producers in the most impacted industries. Their study estimated that the Producer Price Index (PPI)—a measure of the selling prices received by domestic producers for their output—would have been 2 percentage points lower in January 2021 and 20 percentage points lower in November 2021 for certain industries if global bottlenecks had behaved in 2021 like they had in 2019. Excess savings throughout the pandemic may have also fueled higher inflation due to the positive impact on consumption, though the Trump administration also contributed to this phenomenon by enacting its four-part, $3.4 trillion response package made up of the Families First Coronavirus Response Act, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Paycheck Protection Program and Health Care Enhancement (PPPHCE) Act, and the Response & Relief Act. Trump also signed a $900 billion relief bill shortly before Biden took office, which included another round of personal stimulus checks.
Though these structural factors are important to consider, Strain still believes that the Biden administration’s high spending was a significant contributor to inflation—and in turn mortgage rates. “If we hadn’t had excessive monetary and fiscal stimulus, I think we still would have had inflation that was considerably above the Fed’s target,” Strain told The Dispatch. “But, I don’t think it would have been nearly as expensive as we have now.”
Assigning precise shares of blame for rising mortgage rates is an impossible task, but the stimulus package that Biden signed into law was likely a sizable contributor. Mortgage rates would have almost certainly still risen in the absence of the ARP, but anyone looking to purchase a house today would not be entirely unjustified in pointing the finger at Biden when faced with the highest average borrowing costs in more than 20 years.
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