Understanding Quantitative Easing & Trump’s Recent Initiative to Lower Mortgage Rates

What Is Quantitative Easing (QE)?

Quantitative easing (QE) is a type of monetary policy used by central banks to support the economy when traditional tools, like cutting short-term interest rates, are limited.

Under QE, the central bank buys long-term financial assets such as government bonds and mortgage-backed securities (MBS) to increase demand for those assets. When demand rises, bond prices go up and yields (interest rates) go down. Lower long-term yields generally help lower borrowing costs across the economy, including mortgage rates. QE played an important role during and after the 2008 financial crisis and during the COVID-19 pandemic by helping stabilize markets and lower borrowing costs.

How QE Affects Mortgage Rates

Mortgage rates are influenced by long-term interest rates, especially the yield on the U.S. 10-year Treasury bond and spreads with mortgage bonds. When the central bank buys large amounts of mortgage-backed securities, it reduces the supply in the market, raising prices and lowering yields, which can lead to lower mortgage rates for borrowers.

Donald Trump’s Recent Efforts to Lower Mortgage Rates

In early January 2026, President Donald Trump announced a plan via Truth Social to encourage large-scale purchases of mortgage bonds in an effort to push down mortgage rates and improve housing affordability. These actions mark one of the most direct government-linked attempts to influence the housing finance market in recent memory.

Key Components of the Initiative

🔹 $200 Billion in Mortgage Bond Purchases
Trump directed the Federal Housing Finance Agency (FHFA) to have government-sponsored enterprises Fannie Mae and Freddie Mac buy up to $200 billion in mortgage bonds. This is intended to increase demand for mortgage-backed securities, which can indirectly help lower mortgage rates by narrowing the spread between MBS yields and Treasury yields.

🔹 Early Market Reaction
Following the announcement, 30-year mortgage rates briefly fell below 6%, a level not seen in several years, largely driven by the market reaction to the bond buying directive.

🔹 Expected Impact
Analysts suggest the move could nudge mortgage rates lower - potentially by a small fraction (e.g., 0.10–0.30 percentage points) - but is far smaller in scale than traditional QE programs conducted by the Federal Reserve. QE under the Fed often involved trillions of dollars of asset purchases.

🔹 How It Differs from Fed QE
This policy is not a Federal Reserve action, but rather a government administration initiative using the balance sheets of Fannie and Freddie. The Federal Reserve operates independently and has at times engaged in QE itself to support broader financial markets during downturns.

Critics & Considerations

Experts caution that while bond purchases may modestly lower rates in the short term, they may not solve deeper challenges such as housing supply shortages, which play a major role in affordability. The scale of the purchases relative to the total mortgage market is also small compared with traditional QE efforts.

Bottom Line

Trump’s policy represents a direct government intervention targeted at the housing finance system by boosting demand for mortgage bonds. Early results show modest rate declines and market optimism, but the long-term impact - especially relative to traditional QE - remains uncertain.