With the announcement that Trump nominated Kevin Warsh to be the new Fed Chair, there’s a lot of misinformation and speculation making the rounds regarding the potential impact on mortgage rates. Let’s clear it up.
Does the Fed Chair’s Identity Actually Matter?
The specific identity of the new Fed Chair is less important than understanding that any appointed chair will likely favor additional rate cuts compared to outgoing Chair Powell. The real question is whether Fed rate cuts translate directly to lower mortgage rates — and the answer is more nuanced than most people assume.
Fed Cuts vs. Mortgage Rates
A Fed rate cut, in and of itself, does nothing to help longer-term rates like mortgages. Bond markets price in factors supporting rate cuts long before the Federal Reserve actually implements them. By the time cuts occur, mortgage rates have already adjusted accordingly.
If information about future rate movements is publicly available, bond traders will act on it immediately, eliminating any tactical advantage. As a rule: if you can know it, so can bond traders — and it’s a foregone conclusion they’ll trade accordingly.
Real-World Evidence
Mortgage rates hit long-term lows on September 17, 2024 — the day before the Fed’s first rate cut in years. Subsequently, rates rose significantly over the following months despite continued Fed cuts. The market had already moved.
What Actually Moves Rates
Thursday (February 5th) saw the best mortgage rate movement of the week, driven by three employment-related reports suggesting labor market weakness. Bonds benefit from negative economic news — which is what actually moved rates, not Fed speculation.
What to Watch
The upcoming monthly jobs report is the key data point. Strong data pushes rates toward December highs. Weak data sends rates back toward January lows. That’s the real driver — not who’s running the Fed.
Source: US Housing Market Weekly — Jay Bridges, Mortgage Lender, Priority Capital Corporation