WASHINGTON, DC – Heading into next year’s US midterm elections, President Donald Trump seems to have an affordability problem. Not only has he singularly failed to deliver on his promise to bring down prices and reduce mortgage rates, but his massive tax cuts, high import tariffs, purge of immigrants, and relentless pressure on the Federal Reserve to cut interest rates have made living in the US even more unaffordable.
No matter what Trump claims, the truth is that consumer prices are meaningfully higher today than they were when he took office in January, and the average 30-year mortgage rate remains above 6% – a level that has kept housing unaffordable, especially for first-time homebuyers. According to the Bureau of Labor Statistics, the annual rate of consumer price inflation as of September was 3%, or practically unchanged from when Trump started his second term. Thus, the consumer price level is around 3% higher than it was a year ago. No wonder US consumers – including one-third of Trump’s own voters – are expressing deep disappointment with Trump’s failure to deliver on his promise of lower prices and more affordable housing.
Looking ahead, there is every reason to think that Trump will not turn things around and mollify frustrated voters by next November. After all, he is pursuing a combination of fiscal, trade, immigration, and monetary policies that is fundamentally at odds with containing inflation.
Consider his fiscal policy. The One Big Beautiful Bill that Trump signed this summer cut taxes on a large scale and increased the budget deficit to stimulate aggregate demand. According to the Congressional Budget Office, the resulting stimulus should push US GDP up by 0.9 percentage points next year, putting the budget deficit on track to remain above 6.5% of GDP for the foreseeable future. Such stimulus should be sufficient to keep unemployment low and the economy growing at a reasonable pace next year. But it also reduces the likelihood of a deceleration in the pace of inflation from slackening demand or higher unemployment.
Voters are also unlikely to see much relief on the supply side. Trump has hiked import tariffs to around 17% – their highest level since 1936. According to the Yale Budget Lab, these additional levies on imports can be expected to increase consumer prices by around 1.3 percentage points in the short run. To date, it is widely estimated that companies have passed along only around half of the tariff increases to consumers; but consumers will be saddled with the remainder of the cost in due time. Trump’s efforts to deport all undocumented immigrants – and to discourage legal immigration, too – will further add to price pressures, especially in the construction and agriculture sectors.
Yet another reason for concern is Trump’s pressuring of the Fed to cut interest rates sharply while inflation remains above the 2% target, and despite his own budget policies stimulating aggregate demand. Trump will soon name a loyalist to replace Fed Chair Jerome Powell when his term ends this coming May, and he has already been making every effort to stack the Federal Reserve Board with monetary-policy doves.
But Trump seems to be overlooking the fact that the federal funds rate is not as economically relevant as the ten-year US Treasury rate, which determines the market rates for mortgages, car loans, and other key forms of borrowing. If investors come to believe that the Fed is not serious about hitting its inflation target, they will demand higher returns on their Treasury bond holdings, and that, in turn, will put upward pressure on mortgage rates. Investors might also put pressure on the dollar if they come to believe that the US is trying to inflate away its debt burden.
James Carville, President Bill Clinton’s political adviser, famously made the phrase, “It’s the economy, stupid,” the mantra of the 1992 election campaign. Looking ahead to next year’s midterm elections, the economic issue of affordability will be at the top of voters’ minds. Barring an abrupt economic-policy U-turn, the Republicans face dim prospects, and they have only themselves to blame.
Desmond Lachman
Desmond Lachman, a senior fellow at the American Enterprise Institute, is a former deputy director of the International Monetary Fund’s Policy Development and Review Department and a former chief emerging-market economic strategist at Salomon Smith Barney.
Copyright: Project Syndicate, 2025.
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