The New Federal Reserve Chair: Kevin Warsh

It is a well known fact that Mr. Trump desperately wants to see lower interest rates.

As a former real estate guy, he knows better than anyone how much lower rates help spur more economic activity – especially in the real estate sector. Even a 1/2% rate drop would foster a refi and purchase boomlet in the residential world.

So, it seems likely that Mr. Trump would nominate a Fed Chair who is willing to do his bidding.

But – if that were the case, could the new Fed Chair (Kevin Warsh) actually do anything to lower long-term rates?

Mr. Warsh will shake up the Fed. And here are some of the things he’ll do:

Create a more accurate measure of inflation.
Focus more on the money supply (the actual cause of inflation), as opposed to the last-minute data dumps of employment and inflation data.
Foster a different communication style – so that Fed comments don’t move markets.
Shrink the Fed’s balance sheet – meaning no more quantitative easing (bond buying) which increases the money supply and causes inflation.
Prioritize Main Street Over Wall Street – meaning that he will focus heavily on keeping money supply growth and inflation in check – which will keep interest rates lower.
He will not infuse money into the system (QE) to prop up asset prices to keep Wall Street happy, as that fosters inflation.

So yeah, I do think Mr. Warsh will bring down rates – BUT NOT IN THE NEAR TERM.

The Fed Doesn’t Control Mortgage Rates!

The bond market controls long-term rates, not the Fed. Something I blog about often.

So, the conditions currently impacting rates (excessive money supply growth, high oil prices, and hot inflation) are already baked into the cake.

And there is little Mr. Warsh can do that will bring rates down in the near term.

A Fed rate cut (lowering the Fed Funds Rate) would likely be deemed inflationary in fact, and probably result in HIGHER long-term rates. Just like we saw in the Fall of 2024 – when the Fed cut the Fed Funds Rate by 1/2% only to see long-term rates go up by 1/2%.

If mortgage rates do fall in the near term for any reason, it will likely not be because of anything Mr. Warsh does.

Our best hope is the end of the Iran war and falling oil prices…