John’s Finance Corner: Fed Leadership Shift Could Reshape Rate Outlook
Markets reacted last week after President Trump announced plans to nominate Kevin Warsh as the next Chairman of the Federal Reserve, selecting a former central bank official who has been openly critical of the Fed’s recent handling of monetary policy under Chair Jerome Powell.
Warsh, who served on the Federal Reserve Board of Governors from 2006 to 2011, has argued that the Fed played a role in fueling the surge in inflation over the past several years. He believes the neutral rate the level that neither stimulates nor restricts the economy should be lower than where it currently stands. While historically viewed as an inflation hawk for warning that policy missteps could lead to rising prices, Warsh has also emphasized that the Fed should move more quickly to cut interest rates.
If confirmed by the Senate, markets could begin pricing in additional Fed Funds Rate cuts. Whether those cuts ultimately benefit mortgage borrowers will depend heavily on how bond investors respond. Mortgage rates follow Treasury yields, not Fed policy directly, so sustained rate improvement would require bond markets to agree with a faster-cutting approach.
Last week, the Federal Reserve held the benchmark Fed Funds Rate steady, maintaining a target range of 3.50% to 3.75% after three consecutive quarter-point cuts late last year. While the pause was widely expected, the decision was not unanimous. Governors Miran and Waller both dissented, favoring another 25-basis-point cut.
Current market expectations suggest rates may remain unchanged over the next two Fed meetings, though that outlook could shift quickly as new economic data is released. As always, while the Fed Funds Rate influences borrowing costs across the economy, it does not directly determine mortgage rates.
This week brings a heavy slate of labor market data, all of which could influence bond yields and mortgage pricing:
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Tuesday: JOLTS job openings report
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Wednesday: ADP private payroll data
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Thursday: Weekly jobless claims
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Friday: BLS jobs report and unemployment rate
The 10-year Treasury yield has remained range-bound between 4.20% and 4.30% over the past two weeks. While yields remain higher than many would prefer, the spread between Treasury yields and mortgage rates has continued to narrow, helping keep mortgage rates relatively manageable despite ongoing market volatility.
As this data unfolds and leadership changes come into focus, bond market reactions will remain the key driver in determining where mortgage rates head next.
If you have questions about how today’s market impacts your home financing options, I’m always happy to help.
John Lamberg
MORTGAGE LOAN ORIGINATOR
NMLS 189233
