Could the tariff ruling cause mortgage rates to soar?
The US Supreme Court ruled on Friday that President Donald Trump’s tariffs were illegal in a historic 6-3 ruling. The court deemed that the use of the International Emergency Economic Powers Act (IEEPA) was improper.
The ruling doesn’t give any guidance on the issuance of tariff refunds, although it is expected that many corporations may sue to try to use the Supreme Court ruling to recoup tariff money. President Trump told CNN that he had a “backup plan” for tariffs, but did not elaborate.
In the immediate aftermath of the ruling, betting markets on Federal Reserve decisions felt the move reduced the chance of a rate cut anytime soon.
While the markets originally favored a June cut, now CME FedWatch believes that the next cut may not come until July.
Eric Hagen, managing director and mortgage and speciality finance analyst at BTIG, told Mortgage Professional America that ruling tariffs illegal could force Treasury rates up, which could in turn push mortgage rates higher.
“We are just waiting for the SCOTUS decision about whether the tariffs are legal or not,” Hagen said. “But if they aren’t legal, there'd be a hole in the budget. We'd have to borrow more, and presumably, Treasury rates would go up in response to that. That’s one reason why we could see Treasuries going up over the next year.”
Hagen said that could undo some of the rate drops that the market has seen in the first two months of the year.
“Absolutely, look at that as a potential risk,” Hagen said. “There are so many things that contribute to the potential for higher interest rates. That is a very relevant and near-term one for sure.”
The ruling does not impact the tariffs and levies put into place based on Section 232 of the Trade Expansion Act of 1962, affecting steel, lumber, and automotive tariffs.
Why they were ruled illegal
According to the ruling, “Against that backdrop of clear and limited delegations, the Government reads IEEPA to give the President power to unilaterally impose unbounded tariffs and change them at will. That view would represent a transformative expansion of the President's authority over tariff policy.”
Kenneth Katkin (pictured top), law professor at Northern Kentucky University’s Chase College of Law, told Mortgage Professional America that the president would likely be the one that the Court would not agree with.
“A lot of the attention that he's been getting is because of his reliance on a statute called the International Emergency Economic Powers Act,” Katkin said. “His reading is pretty implausible, but that's a statute that says if there's an international emergency or crisis that comes up very suddenly, then the President can take economic sanctions against other countries. I think that's a very implausible reading of that statute, and the court really should strike that down."
Katkin said the use of the IEEPA was likely just an easy way for Trump to try to justify the tariffs.
“Some trade disputes exist, and some of them are more bona fide than these kinds of phony emergencies that he's been cooking up under the International Emergency Economic Powers Act,” Katkin said. “But I think, I think he wanted to rely on the International Emergency Economic Powers Act because he was basically taking the position that anything that he says is an emergency is an emergency.
“So I think he was thinking that that would give him more power. But I do think that there's overreach there.”
Tariffs likely to stay
Just because the Supreme Court ruled the tariffs illegal doesn’t mean they are going away. The Trump administration has said it had backup plans in place if the Supreme Court ruling went against it.
Katkin also thought other statutes were more logical reasons to enforce tariffs.
“There are other statutes out there that actually deal more directly with trade disputes and with the president's power to use tariffs in response to particular trade disputes,” Katkin said. “I think those would be a stronger basis for supporting some tariffs, but only when there is a bona fide trade dispute.”
Justice Brett Kavanaugh, one of three dissenters, noted that the process of possible tariff refunds could be a “mess.”
“The Court says nothing today about whether, and if so how, the Government should go about returning the billions of dollars that it has collected from importers,” Kavanaugh said. “But that process is likely to be a “mess,” as was acknowledged at oral argument.”
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