Fed chair’s close eye on rising prices could end hopes of 2026 rate reductions
When new Federal Reserve chair Kevin Warsh stepped into the post vacated by Jerome Powell in May, hopes were high in the mortgage industry that President Trump’s pick to lead the central bank would attempt to steer rate policy toward 2026 cuts.
But a month and a half after taking the reins as the Fed’s most prominent spokesperson, Warsh has given little clue on whether he sees rate reductions in the cards this year – and comments last week on inflation even suggested a more hawkish approach than some had predicted.
During a panel appearance at the EBC Forum on Central Banking, Warsh told CNBC’s Sara Eisen that prices were still “too high,” a frank admission that inflation is likely running too hot to justify rate reductions anytime soon.
Mortgage rates don’t move in tandem with Fed decisions – meaning even a cut or hike by the central bank wouldn’t necessarily result in mortgage rates shifting. But clues on the Fed’s approach for the coming months are closely watched by traders and priced into bond yields, which influence average 30-year fixed mortgage rates much more strongly.
Warsh’s latest comments on the inflation outlook were hardly surprising. In May, core inflation surged to its highest level since 2023, jumping to 3.4%, while the all-items reading showed inflation ticking above 4%.
Still, that’s not to say the outlook is set in stone – particularly with recent weeks having seen something of a de-escalation in the US-Iran conflict that sent oil prices, and inflation, soaring after it erupted at the end of February.
Inflation data keeps rate cuts in doubt
Warsh has also acknowledged that inflation conditions have changed since his tenure as Fed chair began. “Expectations of inflation over the first four weeks of this period [have] come down,” he said. “Inflation risks have come down.”
Speaking with Mortgage Professional America after the first rate decision of the Warsh era, which saw the central bank hold rates steady last month, William Raveis Mortgage regional vice president Melissa Cohn (pictured below) also noted that Warsh seemed to be keeping his options open.
“He made a comment during the press conference that this is their thinking today on where rates are going – but it could change in six hours or six days,” she said.
Trump keeps distance from Warsh, for now
Powell, who charted a careful and cautious path on interest rates during his final months as chair, often incurred the wrath of Trump for keeping rate cuts off the table.
Plenty of speculation has centered on whether Warsh would face similar pressure from Trump to bring rates lower – but for now, there’s been little sign of displeasure from Trump at Warsh’s approach as chair.
Last week, Trump blasted the Fed’s board as “maybe a little bit hostile” and wanting “to do the wrong thing,” suggesting that he still disagreed with its unwillingness to cut rates.
But in an interview with CNBC, he declined to criticize Warsh directly. “He’s a great guy and a great pro, and I know where he’d like to be,” Trump said, “but he has to do what he has to do.”
Cohn said Warsh had given strong indications in his opening press conference as Fed chair that he wouldn’t be swayed by outside influence over his decisions.
“He’s pretty clear in his messaging… that they’ve got to deal with inflation,” she said. “So for Trump to be able to pressure him to cut rates, or for him to be afraid of a rate hike – that’s not what he’s signaled. I think he’s signaled that he’s ready to deal with the job at hand.”
The Fed has four further decisions scheduled between now and the end of the year: one on July 28-29, followed by announcements in September, October, and December.
For now, the mortgage industry is firmly in wait-and-see mode before finding out whether rate cuts are on the horizon – although a hold, or even a hike, look far likelier options.
One much more imminent development from the Fed to keep an eye on: the minutes from its latest meeting on interest rates, scheduled for release on Wednesday (July 8), which could give a valuable insight into where the Federal Open Market Committee (FOMC) stands on the rate path looking ahead.
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