The fixed mortgage rate hit 7% yesterday. Just a few weeks ago, it was flirting with 6% and appeared headed into the 5s. The mortgage rate is up despite the Fed’s decision to cut the federal funds rate by half a percentage point and signal that more cuts are coming. What’s going on? First, the strong economy is even stronger than anticipated, causing investors to re-think how quickly the Fed will cut rates. Equally important is investors’ rising expectation that former President Trump will win re-election (look at betting markets). Investors are taking Trump at his word and believe if he wins it will lead to higher tariffs, immigrant deportations, and deficit -financed tax cuts in a full employment economy, all of which means higher inflation and more government borrowing. The recent surge in mortgage rates is a clear indication what investors believe a Trump victory would mean for the economy and the nation’s fiscal outlook.

Broad-based tariff hikes are a bad idea. They will cause some combination of higher inflation and higher interest rates and result in a diminished economy. My latest piece for the @PhillyInquirer. inquirer.com/economy/donald-…