“Existing-home sales rose in May, according to the National Association of REALTORS®. Sales elevated in the Northeast, Midwest and South, but retreated in the West. Year-over-year, sales progressed in the Northeast and Midwest but contracted in the South and West.” NAR
President Trump is now putting on a full court press to convince the Fed Governors to cut interest rates. There are some good reasons to lower interest rates, including the fact that home sales are at levels that last prevailed during the 2008-09 Great Recession (see above graph).
But his “Big Beautiful Bill” will add an additional $3 trillion to the federal debt that means almost $1 billion in annual interest payments. Trump has said he wants rates to be cut as much as one point (-1.0%) from the current 4.25% Fed Funds overnight rate that adjusts the Prime Rate controlling credit card and auto loan payments.
Any rate cuts would give a huge boost to financial markets as well that have been held back by the high borrowing costs for both consumers and businesses.
Fed President Powell speaks to congress this week and Trump wants congressional Republicans to grill him on why he hasn’t lowered interest rates further.
This is because Powell said at his recent press conference, “For the time being, we are well-positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”
Two of the Fed Governors appointed by President Trump are already leaning in his direction. Chris Waller and Michelle Bowman said after the bank stood pat last week that they would be open to a rate cut at the July 29-30 meeting, according to MarketWatch’s Jeffry Bartash.
And we mustn’t forget housing sales have been flat since January 2023 when the Fed began to raise their short-term rates. That’s why the National Association of Realtors have also been lobbying for lower interest rates.
"The relatively subdued sales are largely due to persistently high mortgage rates. Lower interest rates will attract more buyers and sellers to the housing market," said NAR Chief Economist Lawrence Yun. "Increasing participation in the housing market will increase the mobility of the workforce and drive economic growth. If mortgage rates decrease in the second half of this year, expect home sales across the country to increase due to strong income growth, healthy inventory, and a record-high number of jobs."
There’s also another reason why interest rates may fall further in July; fears that tariff wars may induce a recession. The Federal Reserve’s release of its minutes from the last FOMC meeting didn’t have much to say about the continuing tariff wars, because nothing has yet been negotiated—just some retaliatory pauses and a written understanding with the UK.
That puts the Fed in a very difficult position. We now know why President Trump has attempted to disguise the fact that it is an import tax. The Court of International Trade has ruled that Trump’s retaliatory tariffs (i.e., import taxes) are illegal.
Hence Chairman Powell’s concern that a recession may be on the horizon was mentioned in last week’s FOMC minutes. “The staff viewed the possibility that the economy would enter a recession to be almost as likely as the baseline forecast.”
We know from past history (i.e., Trump’s first term) that higher tariffs cause higher inflation, which Trump denies will happen again (because it was a campaign promise), and Powell, et.al., have worked hard to get inflation down to its current level.
We also now have reports that imports have declined almost 40 percent in the west coast, which handle most Chinese supplies. Long Beach and Los Angeles posted month-over-month drops of 31.6 percent and 29.9%, while Tacoma and Seattle fell over 40%.
So, there is a good case to be made that interest rates should be coming down, for both good and bad reasons. It does look like Republicans’ “Big Beautiful Bill” will pass, regardless of the consequences. And who doesn’t like lower interest rates?
But Republicans are playing with fire by endangering the “full faith and credit” of the U.S. in wanting to finance it with another $3 trillion in debt.
Harlan Green © 2025
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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