“Mortgage rates aren’t going anywhere.” That was the underlying message from Fed Chair Jerome Powell during his latest Monetary Policy Report to Congress.
As homebuyers and real estate professionals anxiously watch for signs of relief, Powell’s testimony before the Senate Banking Committee made one thing clear: the Federal Reserve isn’t in a rush to cut rates—and even when it does, the housing market’s biggest challenges won’t disappear overnight.
Senators pressed Chair Powell on mortgage affordability, housing supply, and the growing insurance crisis, highlighting the mounting pressures facing American homeowners.
Powell responded, with some clarification on the reason behind today’s elevated mortgage rates. But a clip of Elon Musk from the Oval Office may do a better job of explaining today’s affordability crisis.
Here’s what they had to say.
Don’t miss Byron Lazine’s full breakdown of Powell’s Senate hearing on today’s Hot Sheet:
Powell’s Statements on Housing
During his Monetary Policy Report to Congress, Fed Chair Jerome Powell responded to a series of questions and statements from members of the Senate Banking Committee. Here, we’re including some of the questions and statements touching on the housing market, mortgage rates, and homeownership.
Many senators from both parties focused on the affordability crisis in housing, mortgage rates, and homeownership. Chair Jerome Powell consistently emphasized two key points:
- The Federal Reserve does not control long-term interest rates, which are influenced by factors such as market expectations and federal deficits.
- The Federal Reserve does not control housing supply, which is largely determined by zoning laws, construction costs, and local regulations.
Powell & Musk explain the reasons behind high mortgage rates
In his response to Senator Kennedy, Powell brought up the reasons why long-term rates remain elevated, one of which is the $2 trillion federal budget deficit.
[47:08] – Senator John Kennedy (R / LA): “You and the Federal Reserve can, to a large extent, control short rates, can’t you—through the open market committee? …You can’t control long rates, though, can you?”
Powell: “No, we can’t.”
Kennedy: “Why is that?”
Powell: “So a lot of things go into long rates and one of them is the expected future short rate of fed policy, but many, many others go in expectations of inflation. In the longer run, the sort of risks around the economy and around the budget deficit go into something called the term premium, which is the part we can’t explain when we do these decompositions. And so it’s set by supply and demand in the bond market at the long end. And we’re not particularly, we have some influence, but mostly not.
[47:57] – Senator Kennedy: “Many Americans are looking at short rates and looking at the Fed’s behavior and how you reduce inflation, but they don’t, don’t see the long rates going down. And obviously, that affects mortgage rates. And I would encourage you and your colleagues to spend some time explaining to the American people why that is.”
Cue Elon Musk, whose Oval Office address highlights the role of the federal budget deficit in today’s affordability crisis.
Powell is saying we have…a little bit of influence. Really, the influence that Powell has is how the markets react to what they’re doing… But actually, Elon in the Oval Office yesterday with his son explains it better than Senator Kennedy and Jerome Powell did on why these long-term rates are going to stay high, and that includes the 30-year fixed, until this is changed.
— Elon Musk (@elonmusk) February 12, 2025
And whether you agree or not, the point he made to the press there yesterday was ‘We’ve got this $2 trillion deficit. It’s unsustainable. I think anybody looking at this understands that. Investors certainly do. And that’s why the long-term rate is not desirable. Because investors don’t believe, long term, on this trajectory that America is on financially’.
If you actually bring the $2T deficit down, you have no inflation. And what you also have, in that scenario, is lower long-term rates.
The upshot is that America’s federal budget deficit—i.e., excessive spending on the part of the federal government—has far more to do with today’s higher mortgage rates than the Federal Reserve’s rate cuts.
That didn’t stop other senators from pressing Powell on mortgage rates and housing affordability.
Key Topics Addressed in Powell’s Testimony
Other major themes from the discussion included:
- Mortgage Rates & Affordability: Multiple senators pressed Powell on the impact of high mortgage rates on homebuyers, particularly first-time buyers struggling with affordability. Powell reiterated that mortgage rates are primarily tied to long-term bond yields, not directly to Fed policy.
- The Federal Budget Deficit & Long-Term Rates: Discussions touched on how the U.S. budget deficit contributes to elevated long-term interest rates, which in turn keep mortgage rates high.
- The Role of Fannie Mae & Freddie Mac: Senator Jack Reed highlighted their importance in making mortgages more accessible. Powell acknowledged their role in holding down mortgage rates but deferred broader policy questions to Congress.
- Rising Home Insurance Costs: Senator Tina Smith raised concerns about how climate-related disasters are driving up home insurance premiums, which could make homeownership even less affordable. Powell noted that banks and insurers are already pulling out of high-risk areas.
- Housing Supply & Structural Challenges: Senators, including Ruben Gallego, pointed out that supply constraints—such as land use restrictions, labor shortages, and material costs—continue to drive up home prices, beyond what interest rate cuts alone could address.
Powell’s core message remained consistent: while the Fed’s monetary policy influences the broader economy, long-term housing affordability challenges stem from factors beyond the Fed’s control.
For a full review of Senate members’ housing-related questions and Powell’s responses, watch Byron Lazine’s full breakdown on today’s Hot Sheet.
