Yun suggests that addressing the federal deficit could be a key strategy to mitigate high mortgage rates. While the Federal Reserve is independent, government fiscal policies, such as taxation and spending, can indirectly influence interest rates.

Yun expressed concern about the potential inflationary impact of tariffs and budget deficits. Since tax cuts are likely under President-elect Donald Trump, he emphasized the need for significant spending cuts to control the deficit.

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Trump recently appointed Musk and Vivek Ramaswamy to streamline government operations and reduce costs to lead the newly formed Department of Government Efficiency. The initiative, which aims to eliminate bureaucratic hurdles and improve government performance, could contribute to fiscal discipline and, indirectly, impact interest rates.

The endeavor’s success, however, will depend on Musk and Ramaswamy’s ability to deliver tangible results within a relatively short time frame. Their appointment has generated significant interest and speculation about the potential economic and financial market implications.

Analysts have cast doubt on the potential impact of Musk and Ramaswamy’s appointment, noting that Congress holds ultimate authority over the federal budget and often disregards White House proposals.

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During his campaign, Trump pledged to lower mortgage rates to 2%, a level last seen during the pandemic. The Federal Reserve slashed its benchmark interest rate at that time in response to economic disruptions caused by widespread closures and suppressed activity.

Yun noted in a Nov. 8 speech at a NAR conference that mortgage rates during Trump’s first term averaged around 4%. This historical context contrasts sharply with the high rates that have dominated the housing market in recent years, driven by the Fed’s tightening monetary policies to combat inflation.

“Are we going to go back to 4%? Per my forecast, unfortunately, we will not,” Yun said. “It’s more likely that we’ll go back to 6%. That will be the new normal, bouncing around 5.5%-6.5%.”

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This article One Economist Thinks Elon Musk Holds The Key To Affordable Mortgages – Here’s Why originally appeared on Benzinga.com