Slashing rates could prove easier said than done for Powell’s successor
President Trump's long search for a successor to outgoing Federal Reserve chair Jerome Powell ended Friday with the announcement of Kevin Warsh as his pick to lead the central bank.
As recently as December, Kevin Hassett seemed Trump's likely choice to replace Powell. But Warsh shot to the front of the race in recent weeks, and was hailed by Trump as a potentially "GREAT" Fed chair on Friday morning.
The decision arrived two days after the Fed announced it was leaving interest rates unchanged in its first decision of 2026.
The president has repeatedly attacked Powell for his approach to interest rates policy and suggested that rates would begin to slide under the next Fed chair.
“When we have a great Fed chairman, I think we’re going to have one. I’ll announce it pretty soon. You’ll see rates come down a lot,” Trump said during a speech in Iowa this week.
He fired another salvo at Powell through Truth Social on Thursday morning. “Jerome ‘Too Late’ Powell again refused to cut interest rates, even though he has absolutely no reason to keep them so high,” Trump wrote.
Fed chair just one of several key central bank voices
It's unclear whether Warsh will prove more amenable to Trump’s views on interest rates, which the president said should be two to three percent lower on Thursday.
But bringing rates down immediately by that amount is easier said than done – and the incoming Fed chair almost certainly won’t be able to introduce huge rate cuts straight away.
That’s because the head of the central bank is just one of 12 decisionmakers whose voices matter in the Fed’s rate deliberations.
“The Fed chair does not define monetary policy,” William Raveis Mortgage regional vice president Melissa Cohn (pictured top) told Mortgage Professional America after the Fed’s latest decision on Wednesday, a hold to its funds rate.
“There are 12 people that vote on rate decisions and if you look at the decision today, it was a 10-versus-2 decision,” she pointed out.
Stephen Miran and Christopher Waller, two members of the Federal Open Market Committee (FOMC) appointed by Trump, voted to cut rates by 25 basis points this week.
“But everyone else said, ‘No, now is not the time,’” Cohn said. “And I think that no matter what the new chairman says, if the Fed remains independent and the FOMC does its jobs, they will be data-dependent and not politically dependent.”
That arrangement means if the next Fed chair’s views on rate policy diverge dramatically from the rest of the FOMC, they’ll have to convince other members to vote for big rate cuts rather than simply announcing them unilaterally.
And Cohn views the Fed’s current, cautious approach as better policy in the long run for the mortgage market than potentially sudden, dramatic cuts.
“Everyone wants rates to be lower. We all want to have a banner year in real estate, but we have to get there the right way,” she said. “We also have to remember that if politics does get involved and rates are artificially driven lower, it’s just going to create more inflation in the future and it’ll come back to haunt us.”
Treasuries largely calm after latest Powell remarks
While big rate cuts might move mortgage rates lower in the immediate term, they could also put upward pressure on bond yields – a key driver of mortgage rates – over a longer spell.
Ten-year Treasury yields have crept upwards since the middle of January amid growing geopolitical unease and a renewed wave of tariff threats by Trump.
Powell struck a measured tone in Wednesday’s press conference after the Fed decision, refusing to be drawn on questions about the weakness of the dollar and his recent attendance at a Supreme Court hearing on Trump’s attempted firing of Fed governor Lisa Cook.
At time of writing, 10-year Treasury yields were close to where they sat on Tuesday, one day before the Fed announcement, after spiking and then dipping on Wednesday.
Cohn said Powell’s careful remarks likely set markets at ease after a turbulent few weeks. “It just shows that he remains apolitical. And that’s what the market needs,” she said.
“All the external noise is not going to stop. I think the markets continue to support Powell and the fact that he’s apolitical and they focus on the data and not on anything else.”
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