Despite administration support, ongoing Powell investigation could derail confirmation
As the days tick down to the end of Jerome Powell’s Fed chair term, the process to confirm his replacement looks like it will begin next week. But that doesn’t mean things are guaranteed to go smoothly.
Former Fed governor Kevin Warsh has been nominated to succeed Powell as Fed chair by President Donald Trump. Multiple news outlets reported on Tuesday that Sen. Tim Scott, R-SC, said the confirmation hearings would start next week.
His confirmation has been delayed for a couple of reasons. One of those reasons was taken care of on Monday, when Warsh submitted required financial disclosures to the Senate. Those files disclosed over $100 million in assets.
The other roadblock is an ongoing investigation into Powell, which surrounds the $2.5 billion renovation of the Federal Reserve building.
Republican Senator Thom Tillis, who has been the target of Trump administration attacks for his opposition to the “one big beautiful bill,” has promised to reject any nominee until the ongoing investigation into Powell is ended.
Without Tillis’ support, it will be difficult for Warsh or any nominee to make it out of the hearing. US Attorney for the District of Columbia Jeanine Pirro has said she plans on going forward with the investigation into Powell.
Powell's future in question
Not only could the investigation hold up the Warsh confirmation, but it also puts Powell’s future in question. One thing is certain: he will continue to serve as Fed chair until his replacement is confirmed.
If Warsh is confirmed in spite of the investigation, Powell may remain on the Fed board rather than retiring as is customary. Kenneth Katkin, law professor at Northern Kentucky University’s Chase College of Law, told Mortgage Professional America that he thinks it is unlikely Powell would leave with an active investigation in progress.
“It would be typical for most chairs to actually resign from being a governor when their chairmanship ends,” Katkin said. “That's what they usually do, even though they're not required to do that. I think Trump actually just made that impossible. He probably has to stay on and not resign because he doesn't want to look like he was pushed out, or like he had to leave because he's actually a criminal.
“I think it makes it necessary for him to stay, so it seems very counterproductive to me. If Trump wanted to get rid of him, probably the best thing to do would have been just to be nice to him and compliment him for doing such a good job. He probably would have just resigned in May, but I think he's likely to stay on the Fed for longer than that now.”
What to expect from a new chair
If confirmed, Warsh will come to the Federal Reserve with the directive from the Trump administration to cut rates. Expert opinions are mixed as to whether that will happen, in large part due to uncertainty caused by geopolitical turmoil.
Odeta Kushi, deputy chief economist at First American, told Mortgage Professional America in January that a new chair likely wouldn’t change the path forward for the central bank.
“Leadership changes in 2026 are unlikely to materially alter the Fed’s policy direction,” Kushi said. “Although the chair influences communication and risk framing, policy is ultimately set by a committee where the chair holds just one vote. Any new leadership may shift tone, but the dual mandate keeps policy grounded in employment and inflation goals, limiting the scope for sudden changes.”
Eric Hagen, managing director and mortgage and specialty finance analyst at BTIG, thinks Warsh will have his marching orders from the White House. However, whether mortgage rates drop will come down to the Treasury market.
“I think the Fed is the next big shoe to drop,” Hagen told MPA. “We totally expect that Trump is going to get his guy at the Fed, and he's going to drive interest rates pretty much as low as possible. We’re looking for the Fed to cut rates and for that to have an almost immediate spillover effect, maybe lowering volatility even further, and potentially tightening the mortgage spreads further.
“But we really need to see Treasury rates fall. If mortgage rates get down to the low 5s, we feel like the market really starts to take off. There's going to be more activity at 5.5%, but like low 5s, high 4s, we think the market really starts to take off.”
Melissa Cohn, regional vice president of William Raveis Mortgage, said the thing brokers need to keep in mind is that Warsh is just one of 12 votes on the Federal Open Market Committee (FOMC), so cuts are not guaranteed.
“The Fed chair does not define monetary policy,” Cohn told Mortgage Professional America after the January rate decision to hold. “There are 12 people who vote on rate decisions, and if you look at the decision today, it was a 10-versus-2 decision. I think that no matter what the new chairman says, if the Fed remains independent and the FOMC does its job, they will be data-dependent and not politically dependent.”
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