What Trump’s Fed Chair pick Kevin Warsh could mean for mortgage rates
As the housing affordability crisis becomes a growing political focus, Kevin Warsh, President Trump’s pick to chair the Federal Reserve, has said he believes the central bank can use its monetary policy powers to help bring down mortgage rates.
“We can lower interest rates a lot, and in so doing, get 30-year fixed-rate mortgages so they're affordable, so we can get the housing market to get going again,” Warsh, a Fed critic and former member of the central bank’s board of governors, told Fox Business last year
Warsh’s comments echo views held by Trump, who has repeatedly attacked outgoing Chairman Jerome Powell for being “too late” to cut interest rates, hurting consumers. By installing Warsh, Trump hopes to have a chairman who is more willing to swiftly lower interest rates but still command the respect of Wall Street.
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When it comes to mortgage rates, the Fed doesn’t directly control them, though its interest rate decisions can influence their direction.
Often, if a central bank opts to keep benchmark rates low when inflation remains hot, long-term yields move higher, a sign that investors are concerned about inflation down the line. That scenario can end up pushing mortgage rates higher, due to their close relationship with the 10-year Treasury yield.
“An explicit focus on cutting its policy rate to lower longer-term rates could backfire,” Realtor.com senior economist Jake Krimmel said in a statement.
However, that explicit focus on the federal funds rate is exactly what Trump cites repeatedly in his expectations of a new Fed chair. And lately, he’s been tying the rate issue to home affordability.
“We’re going to make it easier to buy, we’re going to get interest rates down,” he said Thursday during a Cabinet meeting.
Read the latest updates and reactions to Trump's Fed chair pick
Bill Banfield, chief business officer at mortgage company Rocket, noted that Warsh has criticized the size of the Fed’s holdings of Treasuries and mortgage-backed securities. Policy that gradually shrinks the central bank’s balance sheet, alongside lowering short-term rates, could lead to stable or slightly lower mortgage rates, Banfield said.
“Where funds go or don't go along with inflation expectations will drive the outcome for mortgages,” he wrote in a post on LinkedIn on Friday.
Housing affordability is a complex problem involving both housing supply and demand. Powell repeatedly said he viewed affordability as primarily a supply issue, which is outside the Fed’s purview.
But lately, Trump has said he’s reluctant to support any policies that might push prices down for homeowners, leaving mortgage rates as a major tool in his affordability push.
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