New Fed chair Kevin Warsh narrowly got confirmed via a 54-45 vote Wednesday, leading to what many hope will be lower mortgage rates, somehow, someway.
He replaces vilified ex-chair Jerome Powell, who was repeatedly attacked by President Trump for not cutting rates more or nearly fast enough.
During Powell’s reign, the Fed raised rates 11 straight times to combat surging inflation, before cutting six times thereafter.
At the same time, the Fed wound down its quantitative easing (QE) program, in which it purchased trillions in residential mortgage-backed securities (MBS) to push mortgage rates lower.
Today, 30-year fixed mortgage rates are around 6.5% today versus the low 3s seen before QE ended and the hiking began. So what’s next for mortgage rates under Warsh?
Warsh Will Have a Tough Time Getting Mortgage Rates Lower
First off, the Fed doesn’t explicitly control mortgage rates. Really, they control short rates, not long rates like the 30-year fixed.
Yes, Fed rate expectations can affect the longer end, but ultimately, it’s the underlying economic data that truly matters.
Things such as labor data and inflation data, which drive Fed policy decisions. So no matter who is in charge, it’s really the data that drives decisions.
The problem Warsh is facing is that he’s stepping in during one of the most challenging moments in recent memory.
With the ongoing Iran war disrupting global oil supplies and reigniting inflation concerns, the path to lower interest rates is tricky to say the least.
In the past, Warsh served as a former Fed governor and was opposed to a second round of quantitative easing (QE), eventually leading to his resignation in 2011.
To that end, he has long been viewed as a monetary policy hawk and someone who is against large-scale asset purchases.
So the easiest and fastest way to get ultra-low mortgage rates again, QE, is off the table. That means we must look to the data instead.
Mortgage Rates Remain Tied to Economic Data and the Iran War Is Making Things Worse
Again, let me remind everyone that mortgage rates are driven by economic data, not the Fed itself.
The central bank sets its short-term federal funds rate (FFR) in response to its dual mandate, which is a balance of price stability and a healthy level of employment.
Meanwhile, longer-term rates (such as the 30-year fixed mortgage) are more closely tied to the bond market, investor sentiment, and even geopolitics.
Things were looking good for additional rate cuts this year when Warsh first got the nod, but that was before the Iranian conflict.
Now he’s facing $100 per barrel oil and inflation that’s on the rise again.
Long story short, the data simply isn’t cooperating for lower mortgage rates.
The Iran conflict has pushed oil prices sharply higher, with ongoing disruptions in the Strait of Hormuz adding to supply worries.
As such, economists have already revised up their 2026 inflation forecasts.
Meanwhile, the 30-year fixed mortgage rate is hovering around 6.5%, up fairly sharply from the sub-6% rates seen at the end of February.
That’s not terrible historically, as the 30-year fixed has averaged 7.75% long term.
But it’s a far cry from the mid-5s or even lower levels many borrowers were hoping for under Trump, who constantly promised to bring back the low mortgage rates.
Warsh Doesn’t Look Poised to Rescue Mortgage Rates
While there is plenty of optimism, the Fed under Warsh probably won’t look too much different than it did under Powell.
Higher inflation from the war means policymakers will have to stay vigilant and be conservative when it comes to any additional rate cuts.
Sure, Warsh might be able to frame things in a dovish manner, holding off on hiking, even if the data warrants it.
That could be his initial “win” here if he’s truly serious about bringing down rates, which his track record doesn’t even support.
So in the near term, he could garner support by influencing the Fed to stay put as opposed to hike.
That could potentially keep 30-year fixed mortgage rates in a holding pattern and avoid seeing them go even higher.
But it will again depend on the data. It’s always the data. If the bond market sees another inflation threat, 10-year bond yields will keep climbing and mortgage rates will too.
It won’t matter much if Warsh tries to convey that it’s transitory, or that AI will lead to a positive supply shock.
A Recession Might Get Mortgage Rates Lower in the End
The irony here though is that weaker economic growth from the conflict could eventually pressure mortgage rates lower.
It’s not exactly the scenario Warsh laid out, but it’s a means to an end and would at least get us there in the end.
Whether President Trump would be thrilled with a faltering economy and lower mortgage rates is another question.
But this is the issue with mortgage rates in general. It’s kind of a “bad news is good news” thing outside of direct intervention like QE, which Warsh is clearly opposed to.
Also note that lower mortgage rates thanks to a recession or economic distress will likely be flanked by higher unemployment and slower home price appreciation.
So it’s not necessarily something to be rooting for…
In short, the war with Iran might lead to another bout of sticky inflation, thereby closing off what appeared to be a potentially easy-ish path to lower mortgage rates.
And because Warsh opposed the Fed’s massive bond-buying programs and zero interest rate policy (ZIRP), we’re probably stuck in the mid-to-high 6% range for the foreseeable future.
This is really no different than conditions under Powell, so if you’re banking on lower mortgage rates under Warsh, perhaps temper your expectations.
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