It’s clear that the trade war is now the biggest driver of mortgage rates today.
Prior to the arrival of tariffs and a wider trade war, inflation and unemployment dictated their direction. Surging inflation was a big reason why mortgage rates climbed to 8% in late 2023.
But no longer. At least not for the moment. Despite cool economic data being delivered each week, bond yields (and mortgage rates) are rising again.
The latest evidence came via a softer-than-expected CPI report, which would normally result in better interest rates.
Instead, the 10-year bond yield was up today when it might otherwise have fallen. What gives?
Cooler Inflation Data Is Being Overshadowed by Tariffs
If you’ve been paying attention, mortgage rates were enjoying a nice little run of late. But that abruptly ended a week ago.
When Trump entered office for his second term in January, the 30-year fixed was averaging close to 7.25%.
In the span of six weeks, from around mid-January until early March, rates fell to roughly 6.625%, possibly fueled by the mass government layoffs implemented by DOGE, and fears of a recession.
But there was always some restraint as mortgage rates inched lower. And that was due to the unknowns surrounding Trump’s policies, including his favored tariffs.
While he waffled and delayed planned tariffs on Canada and Mexico in February, he did follow through with 10% tariffs against China.
He then imposed tariffs on Canada and Mexico in early March, before delaying them again until April.
But he doubled down on China, increasing the tariff on Chinese imports to 20%.
Then today he had another change of heart, and imposed 25% tariffs on all steel and aluminum imports from ANY country. In other words, a world trade war is now in effect.
Tariffs Were Inflationary Before, and Likely Will Be Again
The long and the short of it is that tariffs are known to be inflationary. And we have evidence because Trump imposed tariffs during his first term too.
While they are intended to penalize the countries that export products, the cost is typically just passed on to the end consumer who happens to reside in the United States.
A report from the International Trade Commission found that tariffs imposed in 2017 “had impacts on downstream industries such as construction and automotive manufacturing that rely extensively on steel inputs.”
This meant the prices of cars skyrocketed for consumers, which isn’t great news if you’re actively battling the worst inflation in decades.
So while a cool economic report is typically good news for mortgage rates, it’s being overshadowed by inflation-causing tariffs.
And who knows what tomorrow will bring? Even if inflation is falling, who really cares if tariffs have the ability to make inflation much worse again?
That might be why the cooler-than-expected CPI report released today didn’t lead to lower mortgage rates.
Or why the weak jobs report released on Friday did nothing to lower rates either.
Remember, the Fed’s dual mandate is price stability and maximum employment.
If both are showing signs of weakness, bond yields would likely drop and the Fed would probably lower its own fed funds rate.
In the process, mortgage lenders would also lower their mortgage rates. But that’s no longer happening, at least for the moment.
Instead, we’re seeing sticky-high interest rates and slowing economic growth, which is commonly referred to as stagflation.
By the way, one could argue that mortgage rates went up when Trump was expected to be the next president, and have only really come back down to pre-election levels.
So despite some recent improvement, we’re merely back to square one, with a deteriorating economy to boot.
Is Uncertainty Actually Good for Mortgage Rates?
There’s a saying that uncertainty is good for mortgage rates, largely because in times of uncertainty, investors will ditch stocks and make the flight to safety to bonds.
When they buy more bonds, their associated yields fall. So the 10-year bond yield, which tracks mortgage rates really well, drops.
And with it, 30-year mortgage rates also come down. At least, that’s the theory. This could happen during a stock market selloff, or due to a geopolitical event.
It was working well in the month of February as the economy looked like it was cooling faster than expected, stoking renewed recession fears.
But lately, stocks have fallen while bond yields have risen. In other words, equities are losing value and mortgage rates are rising.
Not exactly a great combination if you’re a prospective home buyer or an existing one looking to apply for a rate and term refinance to save some money each month.
It seems clear that uncertainty related to the tariffs and a wider trade war isn’t good for mortgage rates.
While tariffs have been hotly debated, most expect more inflation if they are enacted.
For example, if products like steel and aluminum go up in price due to tariffs, so too will the products that contain it.
Same goes for lumber from Canada, which theoretically raises the price of new homes being built in the United States.
This either leads to more expensive homes, or fewer new homes, with both scenarios raising the price of new homes.
Where Would Mortgage Rates Be Today Without a Trade War?
I’m curious where the 30-year fixed would be today if not for the newly-unveiled trade war.
When the tariff talk ramped up a week ago, the 10-year bond yield started climbing again.
Sure, there were economic reports mixed in that may have pointed to a more resilient economy, but it still feels like trade is steering the ship right now.
We appeared to headed toward a 6.5% 30-year fixed before getting derailed by another tariff whirlwind, which is still very fluid.
In my eyes, the economic data released recently was weak enough to drive rates below that key threshold, but now we won’t know.
Until there is more clarity on tariffs, mortgage rates will be stuck at these higher levels, even if interest rate-friendly economic data continues to come through.
My biggest fear is mortgage rates could once again rise above 7%. And I just don’t know if the housing market can stomach that.
Read on: 2025 Mortgage Rate Predictions
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.