Over the past few days, Trump has effectively bypassed the Fed, taking direct action to ease housing and consumer credit costs.
For some context on this, let's revisit my August 20th note from last year, about the inflated premium in these key interest rate markets …
August 20, 2025
The pressure on the Fed continues, with another Fed Governor now in Trump's crosshairs.
As we head into Powell's Jackson Hole speech on Friday, let's take a look at how the Fed's overly restrictive policy stance is impacting consumer rates.
The average 30-year fixed mortgage rate is 6.6%. Relative to the 10-year yield, the spread is about 230 basis points. Historically, that spread has run closer to 150-175 basis points — which would put mortgage rates more like 5.7%–6%.
Average credit cards rates are 17 percentage points above the 10-year yield. It's historically closer to a spread of 10.
So, there's a premium in both of these key consumer debt markets relative to the historical average.
But it's not about credit worthiness. That's at record highs …
It’s about perception.
And that perception has been shaped by the Fed, through "forward guidance."
By continuing to talk UP the risks of tariffs, inflation, and higher-for-longer rates, it appears that they’ve effectively convinced lenders to demand a higher premium than the data would otherwise justify.
Fast forward to today.
Despite the Fed cutting rates by another 75 basis points since August, the spread on the 30-year fixed mortgage actually widened (since August) to 255 basis points as of the middle of last week.
Credit card spreads also widened, to even more punitive levels (absolute rates over 22%).
So, Fed rate cuts haven't had the desired effect on these housing and consumer rates — and that has suppressed economic growth (could be hotter) and consumer confidence.
With that, Trump has stepped in.
He instructed Fannie Mae and Freddie Mac to use the cash its generated under government conservatorship to infuse a storm of demand in the mortgage bond market, to push yields lower (bond prices higher, bond yields lower).
The mere threat of it should move mortgage rates lower. It did. The 30-year fixed rate dropped to 6%.
Then, over the weekend, he went after the credit card companies, calling for a one-year 10% cap on credit card rates (not spread, but rates) to begin January 20th. If this pressure tactic were to work, it would bring the spread to under 6 percentage points, which would be the lowest in modern history.
Meanwhile, the pressure has been ramped up (to the extreme) on Jerome Powell — who, through both policy and messaging, influences the level of rates and the psychology that drives risk premia in credit markets.
Now, with all of this in mind, we've talked about the wartime-like building of defense, energy, chips, supply chains and data centers. The wartime-like behavior of the metals markets. And the 40s-like boom parallels.
And given this discussion on interest rates and rate spreads, we've also talked in my daily notes over the past couple of years about another potential 40s/wartime analogue: yield curve control.
In this case, we may be getting it. Not the Fed capping longer-term Treasury yields, but the executive branch capping consumer yields.
