As we have rightly observed the groundswell of dissatisfaction on the state of the economy (inflation hardship) and illegal immigrants being top-of-mind concerns for voters, Donald Trump indeed scored a dramatic comeback to the White House as the 47^th President of United States.

With a Trump 2.0 era starting from 20 Jan 2025, how does that change the path of easing interest rate going forward?

That’s the predominant question posed to Fed Chair Jerome Powell in his press conference following Fed’s latest decision to cut the funds rate by another quarter percentage point down to 4.50-4.75%, as widely expected.  Most also think that Fed will be on a pre-set path in the last FOMC for 2024 in December next month to reduce this rate further by another 25 basis points to end the year at 4.50%.

What’s not pre-set is the path forward in 2025 especially in view of what’s likely a red sweep of both the Senate and House (pending) by the Republicans, along with occupying the Oval office.  This gives Trump 2.0 administration a huge mandate to push through sweeping bills and reforms very quickly, as opposed to some views put out that it will take time for things to turn around and for inflation to creep back up, if it does.

Indeed, the futures market already priced in that with terminal rate for fed funds in 2026 now seen as markedly one full percentage higher than what was before Trump wins the election, at 3.50-3.80% range.  For those looking to review and reprice their mortgages soon, what does all that mean for interest rates here in Singapore?

Let me state first this is an opinion piece where our view is also one that’s evolving with changing events.  I draw on our wealth of experience in the mortgage brokering business in the last 10 years (since 2014) after witnessing multiple events and fair share of twists and turns in the interest rate cycle.

Though Trump has the mandate to make sweeping changes once he assumes office, there’s one thing he can’t quite dictate (yet), a topic in itself which comes up for huge debate in his second term I am sure – Fed’s independence as an institution on setting monetary policy.  Openly, Trump has signalled that Powell won’t be elected for a third term beyond 2025.  In that sense, there’s even more room for Powell to be oblivious to political pressure and manoeuvre freely in his final year as Fed Chair.  He alluded as much to that when he said that “election won’t sway Fed’s policy in the near term”.  He also added to a separate question that “Trump can’t legally fire him”.

The question to ask here is: why would Trump want to fire him early, if he could?  Surely, he can’t be asking for higher rates in what’s already considered as restrictive financial conditions today.  Does he then want the Fed to lower rates faster or slower?  The market initially thinks that Trump’s tariffs will be inflationary, causing Fed to go in the reverse direction and hike rates if inflation comes back.  However, the stock market seems to be voting against that notion with S&P breaking above 6,000 in the euphoria of Trump trade.  I will just add: don’t forget, Trump has won his huge mandate campaigning on his promise to “end inflation and make America affordable again”.  That will surely be the overarching goal in all his policies be it tariffs, deregulation, energy policy, tax cuts, etc.  Like I said earlier, if tariffs lead to severe slowdown in economic activities, inflation will die a natural death and there’s more imperative to hasten the rate cuts instead, definitely not hikes.  The jury is still out.

Given Trump’s penchant for giving “tweets” be it on his Truth Social channel or going back to support his new-found compatriot Elon Musk in X, I think we’ll know find out from the man himself which way he likens interest to move.  For now, to get some clues on his likely economic agenda, we listened attentively to interviews by Scott Bessent, Trump’s economic advisor and a strong contender for the next Treasury Secretary post.  Certainly, Scott has raised concerns on the rising 10-year bond yields as that affects directly mortgage rates in the U.S. impacting housing affordability.

For more in-depth analysis and expert view on how best to position your mortgage in a Trump 2.0 era, speak to our mortgage strategists as we work closely as one team who engages in robust debate regularly on the direction of interest rates.

I will just add: don’t forget, Trump has won his huge mandate campaigning on his promise to “end inflation and make America affordable again”.  That will surely be the overarching goal in all his policies be it tariffs, deregulation, energy policy, tax cuts, etc.  

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