At this point, there is only one thing the government can do to keep mortgage interest rates down. They have to shore up the dollar. The only way to do that is to shrink the money supply (or at least reduce the growth rate of the money supply.) The only way to do that is to stop running a deficit. Not likely.
As is well known, the Fed, not the government, controls the Fed rate. This has precious little to do with mortgage rates. Yes, historically they track with some correlation, but they dont have to.
30 year mortgage rates are based on the perceived future value of the dollar i.e. inflation. The willingness of foreigners to buy MBS with all those extra dollars the FED keeps printing for the US Budget deficit and which are then sent overseas to buy stuff through the trade deficit.
If there were no trade deficit, those dollars would just have to come from Americans to buy MBS and keep 30 year interest rates low. The fact that the Chinese, Japanese, and Arabs end up with the extra money supply $$ is just because of the trade deficit.
No investor wants to buy a US mortgage, a bond, in todays $$ then have that worth 50% less against their home currency in 3 years. Our reckless spending will continue to push up rates as investors demand a premium to trade in the US $$. The analogy to the Mexican Peso is pretty darn accurate.
In conclusion, the only way the government can keep 30 year mortgage interest rates down is to stop spending so much damn money…..and/or the FED to stop printing so much money (which in effect accomplishes the first item). That’s about it. Nothing else will work.
Rates will continue to rise until inflation (the money supply) is under control.
