Portland Mortgage Market Update — January 24, 2025

Wow, a lot to going on this week. Obviously, the biggest event was the inauguration of President Trump and all the executive orders that followed. With the markets closed that day, they had some time to digest all the changes and somehow managed to stay pretty level all week. Trump ran for president partly on a policy of reigning in government spending, bringing the budget back in line, and lower costs of goods for Americans. One of his go-to ideas for accomplishing this is to apply Tariffs on foreign goods, which he announced would take place on Feb 1 for Mexico and Canada. While this might bring more income to the US, many believe this would worsen inflation making goods more expensive. So how would he solve that problem?

Trump demanded the Fed lower interest rates in a virtual address to the World Economic Forum in Davos, Switzerland. While the Fed is (crucially) an independent entity from any political party, Trump is ramping up the pressure to get them to cut their interest rates to lower the cost of borrowing for business and homeowners and is recommending the rest of the world banks follow suit. Now the Fed doesn't have to do anything the president requests of them, but earlier this month Fed Vice Chair Michael Barr stepped down from his role citing worries "that the risk of a dispute over the position would end up being a political distraction for the Federal Reserve and for me, and that that would end up detracting from our ability to serve our mission." So he was already having some impact before he even took office. The market more or less ignored Trump's call to lower rates, and seems to be taking a lot of what he says in stride until actions actually happen.

One hypothetical that is impacting the market is today's Michigan Consumer Sentiment survey for January. The report fell from a 74 to a 71.1, which is the first drop in sentiment in 6 months. 47% of those surveyed though the unemployment rate would increase this year, the highest percentage since the pandemic recession. This is obviously a huge concern but a spike in unemployment would cause the Fed to cut rates and mortgage rates would benefit as a result.