Joe Biden's Economic Policies and Potential Impacts on Mortgage Rates
In the context of current political debates, concern often arises about the potential impacts of new administrations on mortgage rates. Specifically, some question whether Democratic policies, such as those under President Joe Biden, might lead to an increase in mortgage rates.
Understanding the Role of the Federal Reserve
It is crucial to understand that the primary influence on mortgage rates lies not with the President but with the Federal Reserve (FRB). The FRB has the authority to control monetary policy and, as a result, the prime rate, which significantly affects mortgage rates. While the President can propose and advocate for certain economic measures, he does not have direct control over these policies.
The Federal Reserve sets the federal funds rate, which impacts the cost of borrowing for financial institutions. In turn, this affects mortgage rates. Even if Biden enacts higher taxes as part of his proposed plans, the impact on mortgage rates would be secondary and indirect, as the primary driver remains the FRB and its policy decisions.
Implications of Higher Taxes and Green Deal Policies
Some commentators suggest that Biden's proposed tax increases and green measures could lead to higher mortgage rates. These policies would make doing business more costly, which could deter both existing and potential businesses from hiring and expanding. Higher operational costs could also contribute to inflation, further influencing interest rates.
For instance, it is argued that following through with higher taxes and the Green New Deal would result in a reduction in economic growth, similar to the period following the Obama presidency. This slow economic growth can make it difficult for businesses to take on new loans or mortgages, thus increasing rates.
Additionally, the argument posits that increased taxation and economic shrinkage could lead to higher unemployment rates, further complicating the economic environment for potential homeowners. These factors collectively suggest that if implemented, Biden's policies could contribute to rising mortgage rates.
Contrast with Previous Administrations
Some critics compare Biden's proposed policies to those of former President Barack Obama, particularly citing the "Tax and Spend" approach. They argue that this approach has historically resulted in reduced economic growth and has limited the ability to create new jobs and industries.
It is asserted that instead of focusing on expensive and potentially ineffective measures like "printing money," which historically has not proven successful in economic recovery, Biden should prioritize opening up the economy and allowing businesses to thrive. Unlike Biden, former President Donald Trump's rapid tax cuts and economic measures resulted in a significant economic recovery with annual growth rates reaching as high as 3-5%,.
Given these contrasting approaches and outcomes, many believe that Biden's policies, if enacted, could have a negative impact on both the economy and mortgage rates, as businesses may become less willing to borrow, leading to higher rates.
Conclusion
In summary, while President Biden can influence economic policies that may have indirect effects on mortgage rates, the ultimate control lies with the Federal Reserve. Higher taxes and the Green New Deal, if enacted, could contribute to rising mortgage rates through increased operational costs and inflation. However, these impacts would have to be weighed against the potential for more targeted, rapid economic recovery measures, as seen under the Trump administration.
It is important to keep in mind that the Federal Reserve has the final say in setting policies that directly impact mortgage rates. As such, any discussion about the future of mortgage rates should primarily focus on the actions of the FRB rather than the President's proposed policies.