Real Estate Must Defend Federal Reserve From President Trump

Thanks but no thanks, Mr. President.

The real estate industry must send that message to Donald Trump as he tries to take control of the Federal Reserve and force it to lower interest rates.

If there’s one thing more important to real estate than low rates, it’s an independent central bank. Countries that lack one are prone to high inflation because when politicians control the banking system, they make money cheaper to juice the economy. This can trigger an inflationary spiral that is impossible to reverse.

Examples abound, as Steve Witkoff and Howard Lutnick surely know. Anyone in real estate with Witkoff or Lutnick on speed dial should be imploring them to get Trump off his Fed kick.

The Fed has a dual role: control inflation and maximize employment. But it prioritizes the former because inflation has a dangerous psychological component: If consumers believe it will keep rising, they do things (like spend more money and ask for raises) that cause it to keep rising. It’s a pernicious feedback loop.

That is why the Fed paused its plan to lower interest rates. It needed to solidify Americans’ confidence that Covid-era inflation will not come back when Trump’s tariffs created a risk that it would. The president has only himself to blame.

If tariffs caused the Fed to pause, they might yet have the opposite effect — because they slowed job growth. The last jobs report was so weak that Jerome Powell, the Fed chair, hinted that rate cuts might be needed to boost employment.

It is crucial, however, that Powell and his fellow Fed governors keep their authority to make these difficult decisions without political interference. Trump’s efforts to oust Powell and fellow board member Lisa Cook might boost ratings for the Trump Show, but he is playing with matches in a dynamite factory.

Central bankers are not the only federal employees who must be free to do their jobs. Those who collect and publish data must be allowed to do so — even if the numbers reflect badly on the president.

Real estate and other businesses make countless decisions based on data, and must have confidence in their accuracy. When Trump fired the head of the Bureau of Labor Statistics because she released the ugly jobs report, that confidence was shaken. Her replacement surely got the memo: If you report weak jobs numbers, your job will be next. Who can trust that the next set of numbers will be genuine?

The Fed is not perfect. It’s possible that with supply chains and workplaces getting back to normal after the pandemic, inflation would have come down just as quickly with something less than a 525-basis-point increase in the Federal Funds Rate starting in March 2022.

What’s important, however, is that the Fed, not the president, makes these decisions. That’s why Fed governors have staggered 14-year terms and cannot be fired by Trump like some poor shlub on “The Apprentice.”

Before the United States had a central bank, financial panics were a regular occurrence. Now they are exceedingly rare, and are nipped in the bud before they get out of hand. Nobody even worries about them anymore.

But for a central bank to be fully effective, it must be immune from political pressure, which leads to short-term decision-making.

Real estate struggled to cope with the fast, steep rise in interest rates, but rates are not historically high. The industry has adjusted and is making money. What it needs most is stability and predictability. Trump’s manufactured drama with Powell and Cook is undermining that.