## **The White House Bypassed the Fed: How Trump Is Trying to Influence Mortgage Rates Through MBS Purchases**

The US administration has chosen an unconventional path to address the housing affordability crisis. Instead of waiting for the Federal Reserve's decision, President Trump ordered the Federal Housing Finance Agency (FHFA) to purchase securities backed by mortgage loans (MBS) worth $200 billion. FHFA Director William Pulte confirmed that the first phase of the operation has begun with a $3 billion purchase.

Such a move is considered a rare intervention of administrative authority in a financial market traditionally controlled by the central bank.

## **What prompted Trump to act independently?**

US Treasury Secretary Baisent explained the logic of this strategy in an interview on January 9. According to him, the Fed's balance sheet still holds about $15 billion in MBS each month in the form of "balance sheet reduction" — bonds that are not reinvested. This portfolio reduction (of $6.3 trillion) creates downward pressure on the market and hinders the decline of mortgage rates.

The administration's decision is to leverage the purchasing power of Fannie Mae and Freddie Mac to compensate for the demand that the Fed does not provide. As Baisent commented, the targeted strategy aims to balance the central bank's asset runoff.

## **Market reacted strongly: how much could rates fall?**

The announcement of this directive triggered a sharp market reaction. MBS prices surged rapidly, and the risk premium (spread) between MBS and US government bonds narrowed by about 0.18 percentage points compared to the previous day.

Although the total volume of $200 billion appears moderate against the backdrop of multi-trillion dollar quantitative easing programs, it still has a noticeable impact. According to Bloomberg analysts, this move could lower mortgage rates by 0.25 percentage points.

Recall: today, the average rate for a 30-year fixed mortgage is about 6.2% — significantly higher than the pre-crisis level of 3%, but lower than the peak of 8% last year. Rob Zimmer, director of the American Public Housing Credit Association, noted that this policy will mainly help young buyers who have long suffered from an excessively wide spread between mortgage financing costs and the yields on government bonds.

## **Monetary policy at a crossroads: a threat to the Fed's independence**

However, not all analysts welcome this move. Traditionally, the Fed manages interest rate regulation across broader segments of the economy — and the system of an independent central bank was created precisely to protect against political influence.

Baird & Co. strategist Kirill Krylov warned clients that the directive blurs the line between market efficiency and political manipulation. In his view, open administrative asset purchases to directly influence mortgage rates reintroduces political risk into the market, which participants have tried to avoid for over a decade.

Jeffrey Gordon from Columbia Law School added that while such operations may be justified as a solution to the housing crisis, the mortgage market is closely linked to overall monetary policy. Essentially, this is covert interference in monetary policy, setting a new precedent and undermining the Fed's independence.

On the agenda are previous attempts by the White House to directly influence the central bank's rate decisions. If the Fed does not quickly align its course with the administration's goals, Trump is prepared to act independently.

## **The future of Fannie Mae and Freddie Mac in question**

Current policies complicate the prospects of privatizing these companies. Trump’s team had previously discussed returning them to the private sector after their nationalization in 2008.

Baisent assures that the MBS purchases will not harm the financial condition of both companies, which have sufficient cash reserves. However, portfolio manager Vitaliy Liberman from DoubleLine Capital noted that market expectations are changing. If the companies fully transition to private ownership, the government will lose its influence lever on the mortgage market.

JPMorgan strategists support this position: using government-sponsored enterprises (GSE) as political tools contradicts traditional investor expectations, creating a deep conflict between current target rates and the future profitability of these institutions.