New inflation data makes the new Fed chair’s job even more challenging
The countdown is on until new Federal Reserve chair Kevin Warsh leads his first meeting of the Federal Open Market Committee (FOMC) in mid-June. The entire mortgage industry is waiting to see what the new chair does differently from his predecessor, and how that might impact mortgage rates.
Warsh takes over as Federal Reserve chair at a challenging time. He inherits a committee holding rates steady at 3.50% to 3.75%, four dissents at its most recent meeting, and a White House openly pushing for cuts. In addition, each new economic data release seems to make the job harder.
The latest release was Thursday, when the US Bureau of Economic Analysis reported that the personal consumption expenditures price index, the Fed's preferred inflation gauge, rose 3.8% in April from the same month a year earlier. Core PCE, which excludes food and energy, came in at 3.3% annually, nearly double the Fed's 2% target.
Selma Hepp (pictured top), chief economist at Cotality, said the structural changes Warsh brings to the role may matter more for mortgage rates than any single FOMC decision.
"He's in a bit of a pickle," Hepp told Mortgage Professional America. "There is this tug of war between the pressure to lower short-term rates, and on the flip side, his idea around bond holdings and how that is impacting higher long-term yields. We've already seen that play out in mortgage rates."
Warsh has signaled a preference for accelerating the Fed's balance sheet reduction, including rolling off mortgage-backed securities and government bonds. That puts upward pressure on long-term yields, which moves the 30-year fixed rate far more directly than the federal funds rate.
"I think the bigger impact on the housing market is on long-term yields, rather than whether he's going to reduce short-term rates or not," Hepp said.
Chairing a divided committee
Warsh also steps into a deeply divided room. The April 2026 FOMC meeting produced four dissents, the most internal disagreement the committee has seen since 1992. Hepp said that how he navigates that fracture will define how the first few months go for Warsh.
"I think he realizes he cannot act unilaterally, and that he does have a lot of folks he needs to build consensus with," she said. "I think the first meeting is going to be more about building that consensus, developing the leadership, so that he can corral the group."
Warsh has also pulled back from the kind of forward guidance that gave markets a window into Fed thinking under Powell. Hepp said it will be interesting to see how a reduction in forward guidance impacts the amount of volatility in rates going forward, if at all.
Rates spiked again last week, but have begun to slide over the last few days. After some indicators showed rates as high as 6.75% for a 30-year fixed mortgage last week, the latest Mortgage Bankers Association data released Wednesday showed the 30-year at 6.65%. These elevated rates caused refinance applications to fall to their lowest share since June 2025.
An eye on Fed independence
The independence question will follow Warsh into every meeting room. He was confirmed largely along party lines, with President Donald Trump making no secret of his preference for lower rates. Hepp said that the backdrop will color how every decision gets read, regardless of the reasoning behind it.
"Whatever he does, it's going to be viewed through the lens of: is this the independence path, or are we aligning with the White House?" she said.
Jerome Powell's continued presence on the board adds another layer. His term as Fed chair ended in May 2026, but his governor seat runs until 2028, leaving him as a voting member under his successor.
Powell faced a Justice Department criminal investigation into cost overruns at the Fed's Washington headquarters, which DC US Attorney Jeanine Pirro dropped in April 2026. But Pirro warned she would "not hesitate to restart a criminal investigation should the facts warrant doing so.” The Council on Foreign Relations has mapped out what Warsh's first 100 days could mean for markets, with the Powell dynamic figuring prominently.
Hepp, who has met Powell through National Association for Business Economics events, said she expects him to keep a low profile.
"He just wants to stand his ground," she said. "If only just in perception."
Hepp pointed to federal deficit concerns, Treasury supply, and debt sustainability as forces keeping long-term yields elevated regardless of what the FOMC decides. She said that because of these concerns, she thinks previous mortgage rate forecasts may need to be reevaluated.
"Everybody expects more volatility as a result, not knowing," she said. "I worry a little bit about where we are forecast-wise for mortgage rates."
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