Trump Gets a New Fed Chair, but May Not Get Lower Mortgage Rates Anytime Soon

President Donald Trump has been impatient to see lower mortgage rates since he began his second term, but his handpicked choice for Federal Reserve chairman may not provide the silver bullet.

Trump campaigned on a vow to get mortgage rates down to 3% or lower, but they have remained stubbornly above 6% for the most part since he returned to the White House.

The president placed the blame squarely on Fed Chair Jerome Powell, calling the central banker a "moron" for his refusal to slash the Fed's benchmark interest rate.

Now Kevin Warsh, Trump's pick to lead the Fed, is preparing to be sworn in on Friday. Warsh has said he shares Trump's preference for lower interest rates, but it's unclear whether he will find a path to cut as the threat of inflation reemerges.

As the Iran war sends oil prices surging, bond markets have sold off, signaling that investors are bracing for higher inflation and rate hikes. Mortgage rates jumped in response, hitting a nine-month high of 6.51% on Thursday, according to Freddie Mac. Lowering them may prove challenging.

Hawks hold sway on FOMC

Last month, the rate-setting Federal Open Market Committee voted 8-4 in favor of leaving the federal funds rate unchanged at the range of 3.50% to 3.75%. That was the final meeting chaired by Powell, whom the president has chastised for a perceived slowness to lower interest rates.

But meeting minutes released this week reveal a stronger consensus among its members behind the vote. Only one member, the since-resigned Stephen Miran, voted for lower rates, continuing his track record of dovish dissents.

Three other hawkish members dissented in the other direction, objecting to language in the Fed's statement that suggested a rate cut could be forthcoming.

The minutes show FOMC members fretting that inflation, caused by both tariff policies and oil price shocks that followed the conflict in Iran, could be more persistent. They were particularly worried about the impact on prices if the Iran conflict extends long-term.

So, almost all of the board "noted an increased risk that inflation would take longer to return to the Committee’s 2% objective than they had previously expected," the minutes state.

And with Powell remaining on the board for an indefinite period, Warsh, who's been supportive of lowering rates, may have one more skeptic to persuade.

Housing implications

The apparent hawkish lean of the FOMC may hamstring Trump's goal of lower interest rates. And it could undermine Trump's affordability push this year, as he seeks to lower housing costs.

Meanwhile, resurgent inflation may also put a direct damper on the housing market, which continues to struggle after three straight years of historically low sales volume, says Realtor.com® senior economist Jake Krimmel.

"Inflation is now running higher than wage growth, so homebuyers are losing real purchasing power with each coming [consumer price index] readout," Krimmel says. "That's an unexpected and unwelcome shock to housing demand and affordability when it seemed like everything was headed in the right direction just 11 weeks ago."

Democrats were loudly critical of Warsh, saying that he was too close to the president. But in his confirmation hearing, Warsh asserted his own independence. And the president this week signaled a hands-off approach.

"I'm going to let him do what he wants to do,” Trump said of Warsh. “He's a very talented guy, he's going to be fine, he's going to do a good job."

Indeed, Warsh's arrival doesn't mean rate cuts are coming automatically, Krimmel says. Even Fed rate cuts might not bring mortgage rates down.

"There is a real catch-22," Krimmel says. "If markets think the Fed is cutting for political reasons rather than data-driven ones, that gets priced into long-term yields as the potential for higher inflation, and mortgage rates could actually rise even as the Fed cuts.

"Regardless, homebuyers should not expect Warsh's swearing-in to ease rising mortgage rates," he adds.