A dovish Fed pick could cut rates fast, but the impact on mortgages was less clear
US president Donald Trump’s decision on the next Federal Reserve chair had raised the stakes for the mortgage market, even before he named a nominee.
Affordability pressures were already front and center, and the choice of a more dovish leader risks reshaping rate expectations far beyond Washington.
Treasury secretary Scott Bessent said he had interviewed five candidates and sent a shortlist to the president, who was expected to announce his pick before Christmas.
Trump told reporters, “I know who I am going to pick, yeah. We’ll be announcing it.”
Markets increasingly see White House economic adviser Kevin Hassett as the frontrunner, with allies portraying him as closely aligned with Trump’s push for faster cuts.
Trump has repeatedly argued that the central bank should slash the federal funds rate to around 1%, contending that Jerome Powell was “hurting the housing industry very badly.”
That target level was a political demand, not an official Fed scenario, and economists had questioned whether it was realistic.
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
What ultra-low rates could mean for mortgages
If a new Fed chair immediately took the policy rate down toward 1% in big steps:
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Short‑term rates and funding costs would fall. Banks and warehouse lenders would see cheaper short‑term funding, which typically narrows margins and supports more aggressive rate sheets.
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Treasury yields could initially move lower. If markets believed the cuts were justified by weaker growth, 2‑year and even 10‑year yields could fall at first, pulling 30‑year mortgage rates down by some amount.
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Refis and purchase demand would likely pop. Any clear move lower in mortgage coupons tends to unlock “on‑the‑cusp” refi borrowers and price‑sensitive purchasers. Lenders would probably see a near‑term applications spike, as they did after previous Fed easing cycles.
Meanwhile, a drastic cut would undermine the credibility of the Federal Reserve, potentially prompting investors to demand higher yields on government bonds. That exodus could push Treasury yields higher to compensate for the risk of the Fed losing its credibility.
If a Trump‑appointed Fed chair delivered the 1% rate Trump wanted, the industry would probably enjoy a brief period of lower funding costs and better headline rates. But if markets concluded the Fed had gone too far, too fast, the long end of the curve could rise as term premiums and inflation worries kicked in.
For brokers and lenders, the key is not the 1% figure itself, but whether the next Fed regime preserves enough credibility to keep long‑term yields – and therefore mortgage rates – anchored.
The long-term cost to the mortgage market could be far greater than a few quarters of cheaper money.
The bigger picture for affordability
Trump framed the Fed decision as part of a broader affordability drive, arguing that lower rates would relieve household pressure as voters struggle with high housing costs and rising bills.
However, even after multiple rate cuts, the gap between outstanding mortgage rates and new loan offers remained historically wide, suggesting that central bank moves alone had not reset the market.
Housing economists have also cautioned that aggressive easing would not reverse structural issues such as limited inventory, elevated construction costs and tight credit overlays.
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