New Fed chairman Kevin Warsh was narrowly confirmed in a 54-45 vote on Wednesday, leading to what many hope will be lower mortgage rates, one way or another.
He replaces ousted former chairman Jerome Powell, who was repeatedly attacked by President Trump for not cutting rates far enough or nearly fast enough.
During Powell’s tenure, the Fed raised rates 11 straight times to fight inflation, before cutting six times thereafter.
At the same time, the Fed reduced its quantitative easing (QE) program, in which it bought billions of mortgage-backed securities (MBS) to lower lending rates.
Today, 30 year mortgage rates are around 6.5% today compared to the 3 lows seen before QE ended and the hike began. So what’s next for mortgage rates under Warsh?
Warsh Will Have a Hard Time Getting Mortgage Rates Down
First, the Fed does not directly control loan rates. Indeed, they regulate short-term rates, not long-term rates like 30-year fixed.
Yes, Fed rate expectations can affect the long term, but in the end, it’s the underlying economic data that really matters.
Things like labor force data and inflation data, which drive the Fed’s policy decisions. So whoever’s in charge, it’s really the data that drives the decisions.
The problem Warsh faces is that he is entering one of the most challenging times in recent memory.
With the ongoing war in Iran disrupting global oil supplies and inflation concerns reigning, the path to lower interest rates is difficult to say the least.
In the past, Warsh served as a former Fed governor and opposed the second round of quantitative easing (QE), which eventually led to his resignation in 2011.
To that end, he has long been viewed as a monetary policy hawk and an anti-capitalist.
So the easiest and fastest way to get the lowest mortgage rates again, QE, is off the table. That means we have to look at the data instead.
Mortgage Rates Remain Tied to Economic Data and Iran War Makes Things Worse
Also, 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 to balance price stability and a healthy level of activity.
Meanwhile, long-term rates (such as 30-year mortgages) are closely related to the bond market, investor sentiment, and national politics.
Things were looking good for more rate cuts this year when Warsh first nodded, but that was before the Iran conflict.
Now you are facing $100 per barrel oil and inflation is rising again.
Long story short, the data just doesn’t support low mortgage rates.
The Iran conflict has sent oil prices soaring, with ongoing tensions in the Strait of Hormuz adding to concerns.
Therefore, economists have already revised their inflation forecasts for 2026.
Meanwhile, the 30-year mortgage rate rose to around 6.5%, up sharply from levels below 6% seen at the end of February.
That’s not bad historically, as the 30-year fixed rate has a long-term rate of 7.75%.
But it’s a far cry from the 5-year or lower rates many borrowers have relied on under Trump, who has repeatedly promised to bring back mortgage rates.
Warsh Doesn’t Look Ready to Rescue Mortgage Rates
Despite the high hopes, the Fed under Warsh probably won’t look much different than it did under Powell.
High inflation from the war means that policymakers will have to remain vigilant and cautious when it comes to any further rate cuts.
Of course, Warsh may be able to organize things a little more awkwardly, sticking to climbing, even if the data warrants it.
That would be his first “win” here if he really is willing to lower prices, which his track record doesn’t even support.
So in the near term, he can get support by persuading the Fed to stay in place instead of hiking.
That could keep 30-year mortgage rates in a holding pattern and avoid seeing them rise even further.
But it will also depend on the data. It’s always data. If the bond market sees another threat of inflation, the yield on the 10-year bond will continue to rise and mortgage rates as well.
It won’t matter much if Warsh tries to show that it’s passable, or that the AI will lead to a shock of good offers.
Recession May Lower Mortgage Rates Eventually
The irony here is that weak economic growth due to conflict can eventually push mortgage rates down.
It’s not exactly the situation Warsh set out, but it’s a means to an end and at least it can get us there in the end.
Whether President Trump would be happy with a sluggish economy and low mortgage rates is another question.
But this is the problem with mortgage rates in general. It’s a “bad news is good news” kind of thing without direct interventions like QE, which Warsh is clearly opposed to.
Also note that lower mortgage rates due to a recession or economic depression will likely be accompanied by higher unemployment and lower housing prices.
So it’s not something you should focus on…
In short, a war with Iran could lead to another spiral of sticky inflation, thus closing off what appears to be a potentially easy way to lower mortgage rates.
And because Warsh is against the Fed’s massive bond buying and interest rate policy (ZIRP) programs, we’re likely stuck in the mid-to-high 6% range for the foreseeable future.
This isn’t really any different than conditions under Powell, so if you’re banking on lower mortgage rates under Warsh, maybe lower your expectations.
