The president wants the Fed to cut, but some believe greater influence over its decision-making would put upward pressure on rates
The growing rift between President Trump and the Federal Reserve deepened Thursday morning as governor Lisa Cook filed a lawsuit over his attempts to fire her, setting the stage for a potentially drawn-out legal tussle between the central bank and the president.
Trump announced this week that he had dismissed Cook over allegations that she acted fraudulently in obtaining two mortgages in 2021, claiming there was “sufficient reason” to fire her for cause and install a replacement.
But critics say the move is a power grab by Trump aimed at seizing control of the Fed, which he’s repeatedly criticized this year over its unwillingness to lower interest rates.
The president suggested a Fed whose view on rate policy more closely matched his own would be positive for the housing and mortgage markets. “We’ll have a majority very shortly… That’ll be great once we have a majority, and housing is going to swing,” he said at a cabinet meeting Tuesday.
Others aren’t sure the president exerting more influence over the central bank would be a positive development for financial or mortgage markets.
Impact of Trump successfully firing a Fed governor ‘wouldn’t be gradual’
Eric Croak (pictured, top left), president at financial planner Croak Capital, told Mortgage Professional America lender confidence tended to be “highly correlated” with central bank independence, and that the recent Trump-Fed furor could have a damaging impact on the mortgage rate outlook.
“If a president was to fire a Fed governor, the ripple effects from that wouldn’t be gradual,” he said. “Market pricing would begin to change within days. The Fed’s perceived independence has been a key reason why mortgage rates have not behaved like a yo-yo over the years.
“So ironically, the mere suggestion of political interference would likely make homebuying or refinancing much less affordable in short order.”
Longer-term Treasury yields crept higher after Trump revealed his attempt to fire Cook on Monday night, while the 10-year yield – a key driver of 30-year US fixed mortgage rates – also inched upwards but had started ticking lower by Tuesday.
But the outlook for the longer term could be choppier, Croak said, if a president begins to exert more control over Fed policy. “Greater presidential influence on the central bank may affect the curve in ways that the traditional model does not anticipate,” he said.
Investors appear to be betting on a short-term decrease in interest rates and a long-term increase, based on the steepening of the yield curve in trading on Tuesday.https://t.co/jvUHEySBs2
— Mortgage Professional America Magazine (@MPAMagazineUS) August 27, 2025
“For example, investors may require additional compensation for policy discretion risk that raises the intermediate part of the curve and helps maintain sticky mortgage coupons.
“Banks and other lenders may also favor more rapid amortization and adjustable-rate products in times of perceived intervention, while securitization pipelines may favor coupons with lower duration exposure.”
But spreads could also return to historical norms, Croak highlighted, if a credible inflation trajectory and clearly articulated reaction functions emerge.
‘History shows independence is what keeps inflation expectations anchored’
The immediate unpredictability that would likely arise from a Fed that moves in tandem with the president’s views on interest rates would stir jitters in financial markets, according to Zack Simkins (pictured, top right), managing director of mortgage lender Vaster.
“Markets don’t like uncertainty,” he told MPA. “Even if the Fed funds rate stays the same, questions around Fed independence can push up Treasury premiums and widen mortgage spreads. That pressure can drive mortgage rates higher in the short term.”
Trump has repeatedly claimed this year that the Fed’s funds rate needs to be far lower, even sending a letter to chair Jerome Powell indicating how deeply the central bank should cut.
Greater presidential control over the Fed could – in theory – create faster coordination between fiscal and monetary policy, Simkins said. “But history shows independence is what keeps inflation expectations anchored, and that is what helps keep long-term rates lower over time,” he added.
Ultimately, though, more than political turmoil will determine where mortgage rates are headed, even if the Trump-Fed tussle escalates further.
“Mortgage rates aren’t driven by one switch,” Simkins said. “The Fed sets the tone, but markets decide the price. Politics can create short-term swings, but it’s supply and demand that ultimately set the cost of borrowing.”
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