Trump's interest rate cuts could worsen homebuying crisis, warns economist

In the United States, President Donald Trump has recently criticized Federal Reserve Chair Jerome Powell, attributing the high home prices to his management of interest rates. This criticism comes amid a backdrop where home prices reached an unprecedented high in June 2025, and home sales fell to a nine-month low. Trump has suggested that lowering interest rates would make homebuying more affordable for Americans, particularly for first-time buyers, who are currently deterred by high listing prices and elevated mortgage rates. He expressed this sentiment during a press conference held in the Oval Office, labeling Powell as ineffective in addressing the housing market issue. However, Robert Reich, a former Labor Secretary and current professor of public policy at the University of California, Berkeley, presented an alternate view on NPR. Reich cautioned that a decision to cut interest rates could potentially backfire, exacerbating the very issues Trump aims to solve. He explained that although lowering interest rates theoretically lowers mortgage costs, it might not translate into reduced mortgage rates. If the market perceives the Federal Reserve as unwilling to combat inflation, investor confidence could wane, leaving mortgage rates unchanged or even rising. Such market dynamics play a crucial role in determining the affordability of homes. Reich further elaborated that supply and demand factors greatly influence home prices. Even if mortgage rates were to decline due to a rate cut by the Fed, the supply of housing is a pressing concern. He noted that the current climate for new construction is challenging, with tariffs imposed by the Trump administration contributing to the rising costs of construction materials. As materials become more expensive to import, the ability to meet housing demand effectively diminishes, leaving many Americans still unable to afford homes. Ultimately, Reich proposed that the White House could have a more significant impact on home prices through policy changes rather than solely relying on the Federal Reserve’s interest rate decisions. He suggested that reducing tariffs and easing the regulatory environment for builders could lead to more affordable housing options. This multifaceted approach may help to address the underlying issues of supply and demand in the housing market, making homeownership more attainable for many Americans. Reich's advice underscores the complexities involved in solving the housing market crisis, indicating that while interest rate cuts may offer a short-term solution, they are not the panacea for long-term affordability challenges.