Economist calls for a quieter Fed as rate jitters ripple through mortgage markets
The debate over the Federal Reserve’s next move has intensified well beyond the AI-fueled stock rally, with mortgage lenders watching a different drama unfold: doubts about the central bank’s credibility and the risk of another bout of rate volatility.
In a CNBC interview, economist Mohamed El-Erian argued that the Fed needs more than a new chair – it needs reform.
“This Fed went to sleep,” El-Erian said, adding that the central bank has to admit mistakes, shift to “scenario analysis, not point estimates,” pay closer attention to the supply side of the economy and improve its “compliance culture.”
He said there are “a lot of things that we have to focus on on the Fed, because it’s so central to our economic well-being.”
El-Erian also pushed for a quieter, more strategic central bank. Referring to comments by Treasury secretary Scott Bessent, he said: “We don’t need a play-by-play Fed, we need the Fed to cool it. We need the Fed to step back and take a bigger sort of visionary view. And we need reforms. We desperately need reforms.”
He added that all five candidates on the reported shortlist for Fed chair are “committed to reforming that institution, which is critical not just for the US, but for the global economy.”
Markets increasingly see White House economic adviser Kevin Hassett as the frontrunner, with allies portraying him as closely aligned with President Donald Trump’s push for faster cuts.
Treasury secretary Scott Bessent signaled momentum in the search for the next Federal Reserve chair, saying there is "a very good chance that the president will make an announcement before Christmas."https://t.co/ialAFOXZNJ
— Mortgage Professional America Magazine (@MPAMagazineUS) November 27, 2025
Fed signaling and the mortgage market
On the Fed’s second consecutive rate cut, analysts noted that renewed Treasury and mortgage-backed securities (MBS) purchases could “influence mortgage rates by increasing demand for government debt,” putting “modest downward pressure” on yields that long-term home loans loosely track.
Betting markets have swung for weeks on the odds of a 25‑basis‑point cut. Traders are now leaning toward a third straight reduction, but the debate around it remains fierce.
El-Erian called that volatility “almost absurd,” highlighting how the implied probability of a move has dropped within weeks.
“It’s crazy,” he said. “This should not happen. The whole point of forward guidance is predictability and stability. So there is something wrong that has to be addressed.”
The reason for the turmoil is the battle between Fed's two mandates.
“We've got a Federal Reserve that's stuck in a conundrum,” Gary Cohn, former director of the National Economic Council under Trump during his first term, and current vice chairman of IBM, said.
“They've got a dual mandate. One is full employment, which means basically getting unemployment as low as possible. And the second part of their mandate is something they call stable prices. Stable prices mean 2% inflation or less. We're not at stable prices right now.”
The trouble with conflicting goals is that the Fed could only tackle one at a time. Cohn said that in the last two meetings, the central bank has put its emphasis on the employment side of its dual mandate.
For lenders and originators, the path of rates hinges not only on incoming data and the next chair, but on whether the Fed manages to restore a steadier, less reactive framework.
A reformed, less noisy central bank could help anchor expectations and, by extension, the cost of mortgage credit – but any misstep on independence or communication risks pulling housing finance back into the crosshairs.
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