There's a policy tug of war happening, and your savings account and mortgage are in the middle of it.
On one side, President Donald Trump is demanding that the Federal Reserve cut interest rates. On the other hand, Fed Chair Jerome Powell is taking a wait-and-see approach to how the economic situation will play out.
However, at the Jackson Hole Economic Symposium, Powell said the Fed might consider rate cuts soon. The reason? A slowing labor market. And one way to bolster job growth is through rate cuts, since it makes borrowing costs cheaper for companies.
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Another development is also at work: Trump announced he fired Federal Reserve Board Governor Lisa Cook. We'll cover how this could impact Fed policy moving forward and what this means for your savings and mortgage rates.
Can Trump fire Fed members?
As things stand, technically, no, he cannot. As Powell said, Federal Reserve governors are "not removable except for cause." And since the tug of war started, Trump has backed off from firing Powell, instead looking for replacements for when Powell's term ends in May of 2026.
However, Trump just fired Federal Reserve Board Governor Lisa Cook. On Truth Social, Trump noted that the reason for Cook's firing was due to her allegedly making false claims on her mortgage applications.
Cook responded to Trump, “President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so.”
She added, “I will not resign. I will continue to carry out my duties to help the American economy as I have been doing since 2022.” She will likely appeal this ruling to the federal court.
If Trump removes Fed members, how does it impact savings accounts?
It's no secret that Trump wants the Federal Reserve to cut rates. If he's able to add more members who are favorable to his policy, he might be able to tip the scales in his favor.
The Federal Open Market Committee has 12 voting members. At its July meeting, there were two dissenting votes for the Fed to hold rates steady. Those two votes came from Fed Governors Michelle Bowman and Christopher Waller, both appointed by Trump.
Rate cuts appear to be gaining momentum, regardless of the ongoing policy tug of war. CME FedWatch indicates an 88% chance of rate cuts at the September meeting.
When rate cuts happen, they lower the rates of return savers receive on high-yield savings accounts, CDs and money market accounts.
However, the influence of rate cuts on each savings vehicle differs. Both high-yield savings accounts and money market accounts feature variable interest rates. That means if the Fed cuts rates in the future, the rates you currently have will drop.
But CDs offer some protection from rate cuts. The rate you lock in is the rate you'll receive throughout the term of the CD.
You can find some of the best CD rates here:
How rate cuts impact mortgages
One of the benefits of rate cuts is that they can lower borrowing costs, including for mortgages. However, while the Fed's decision can influence mortgage rates, other variables also play a role, such as inflation, supply and demand, and, most importantly, the 10-year Treasury yield.
The Treasury yield is the rate at which the government borrows money for a decade. When the yield rises, the borrowing costs of the government increase, too. The 10-year Treasury yield is of high concern now because of its role as an economic indicator.
However, there could be a situation that unfolds where, if the Fed is on shaky ground with investors, they might demand a higher yield on bonds, which could raise mortgage rates.
If you're looking to buy a home soon, your best hope is to shop around for the most affordable rates. Remember, the Fed cut rates three times to end 2024, and mortgage rates didn't follow suit. Using this Bankrate tool helps do some of the homework for you:
The bottom line on Fed rate cuts
While it's hard to see what the future holds, it's clear there will be an eventual future with more Trump appointees in the Federal Reserve.
That, on its own, won't guarantee rate cuts. However, many economists project that a rate cut might happen this fall due to slowing job growth. Therefore, now marks an excellent time to secure higher rates of return on savings accounts or CDs before rate cuts happen.
And as always, the best time to get a mortgage is when you need one, and you can plan to refinance in the future — but make sure to shop around first.
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