Mortgage Rates Surge Amid Trump Win Anticipation: Top Economists Warn of Scorching Inflation

The anticipation of a Donald Trump victory in the upcoming presidential election is sending mortgage rates soaring, with top economists warning of a potential surge in inflation. As the election draws closer, financial markets are pricing in the possibility of a Trump win, leading to increased volatility and higher mortgage rates.

Mortgage rates have been on the rise in recent weeks, with the average 30-year fixed rate reaching 7.09% as of October 30, 2024. This increase has added about $75 to the monthly mortgage payment for a median-priced home, making it even more challenging for would-be buyers to afford a house. The rise in mortgage rates is counterintuitive given that the Federal Reserve recently cut its benchmark interest rate by half a percentage point.

Economists believe that the anticipation of a Trump win is driving up mortgage rates due to concerns about higher inflation. Trump's proposed economic policies, such as raising tariffs on imports and deporting large numbers of immigrants, are seen as inflationary by many economists. A recent survey by the Wall Street Journal found that 68% of economists predict inflation would likely be higher under Trump's policies, compared to 12% for Kamala Harris.

"The recent surge in mortgage rates is a clear indication of what investors believe a Trump victory would mean for the economy and the nation's fiscal outlook," said Mark Zandi, chief economist at Moody's Analytics. "Investors are taking Trump at his word and believe if he wins, it will lead to higher tariffs, immigrant deportations, and deficit-financed tax cuts in a full employment economy, all of which means higher inflation and more government borrowing."

Trump's proposed 60% tariff on Chinese imports and mass deportation of undocumented immigrants are expected to increase inflation by raising the cost of goods and reducing the labor supply. These policies, along with deficit-financed tax cuts, could lead to higher government borrowing, putting upward pressure on interest rates and fueling inflation.

The Committee for a Responsible Federal Budget (CRFB) estimates that Trump's proposals could increase the debt by $7.50 trillion through 2035, with a high-cost estimate of $15.15 trillion. This fiscal impact, coupled with Trump's proposed policies, fuels investor concerns about inflation and interest rates.

Financial markets and mortgage rates have shown sensitivity to election-related events, as evidenced by the real-time movements of Trump's betting odds around key events. For instance, around the assassination attempt on Trump on July 13, his victory odds surged, indicating market confidence in his resilience and potential re-election. Similarly, Harris' chances increased around the second presidential debate on September 10, reflecting market perceptions of her performance.

The economic records and campaign proposals of Trump and Harris differ significantly, impacting financial markets and mortgage rates. Trump's chaotic pandemic response, tax cuts, and tariffs contributed to higher inflation and federal debt. His proposed policies, including tariffs, immigration restrictions, and deficit-financed tax cuts, are seen as inflationary, pushing mortgage rates up. Harris' plans, while also increasing debt, are less costly and more likely to maintain current inflation levels. A Trump win may lead to higher long-term interest rates due to unsustainable fiscal policies, while a Harris win might stabilize rates.

In conclusion, the anticipation of a Trump win is sending mortgage rates soaring, with top economists warning of scorching inflation. Trump's proposed economic policies, such as tariffs and immigration restrictions, are seen as inflationary, driving up mortgage rates and putting upward pressure on prices. As the election approaches, investors are pricing in the possibility of a Trump win, leading to increased volatility and higher mortgage rates. The outcome of the election will have significant implications for the economy, inflation, and mortgage rates in the coming years.