Powell’s replacement could have a tough job cutting rates, but brokers are optimistic about the prospect
The Federal Reserve delivered no surprises in its Wednesday decision to hold interest rates steady – but the announcement could be a significant one, potentially marking Jerome Powell’s last rate meeting as Fed chair.
Powell, who was appointed to the position during President Trump’s first term in 2018, has steered the central bank through an era of high drama that’s included the COVID-19 pandemic, an inflationary spike in 2022, the onset of global tariffs last year, and the outbreak of war in Iran at the end of February.
Many credit Powell with showing a steady hand during that period of tumult, which has also seen the Fed draw Trump’s ire for its cautious approach in not moving interest rates significantly lower over the past year.
Others echo Trump’s view that the Fed has been too slow to cut rates and say its approach has harmed the economy by keeping borrowing costs too high.
Whatever the merit of those arguments, the end of Powell’s term as chair is just over two weeks away (it expires on May 15, although he could legally remain on the Fed’s Board of Governors until the end of January 2028).
His likely replacement, Kevin Warsh, seems more amenable than Powell to reducing rates this year, even if he’s steered clear (so far) of calling for the same depth of cuts demanded by Trump.
Warsh could have his work cut out for him on rate reductions
Rate cuts are by no means a slam dunk even if Warsh favors reductions after being confirmed, mainly because the Fed chair is just one voting member on the Board and would have to bring others around to his line of thinking.
Meanwhile, the mortgage industry knows well that mortgage rates don’t exactly rise and fall in line with Fed decisions. Instead, they’re much more heavily impacted by the movement of 10-year Treasury yields, which sometimes – but not always – move in tandem with the Fed’s approach.
Still, industry members speaking with Mortgage Professional America said they expect rate cuts will at least become more likely under a different Fed chair, potentially putting downward pressure on bond yields.
But much will also depend on how quickly the ongoing conflict in Iran wraps up and whether inflation fears caused by the oil price spike will finally recede.
“I think the new Fed chair can have a major influence, and I honestly think this one will probably be a little bit more in line with the current administration and what their drive is,” said Hunter Bolling (pictured top left) of HB Mortgage Team.
“I do expect there to be some movement and hopefully for the better if we can get things across the world settled.”
Time for a change in how jobs data is reported?
Jay Lessard (pictured top right) of Sonoran Lending, meanwhile, expressed frustration at some of the big revisions to recent jobs data collected by the Bureau of Labor Statistics and questioned whether it was the right basis for decision-making.
The Fed looks at a wide array of labor indicators such as payrolls, unemployment rate, participation, and wages, but the initial jobs data it receives are often prone to heavy revision.
That practice dates back decades, but Lessard sees it as an imperfect basis for formulating central bank policy and reaching rate decisions.
“I think there are a lot of points where the current Fed chair was making decisions based off bad data. We have to get better data. Jobs data that’s coming out is constantly getting revised, and it just doesn’t seem like in the year 2026, we should be gathering data the way they are,” he said.
“When the headline comes out, that’s what causes the market to move. But when the correction comes through quietly, you don’t see anything happen. I think we had points where we could have seen lower rates and we didn’t, and then we just missed out altogether.”
Some observers believe Warsh could have a hard time bringing the rest of the Federal Open Market Committee (FOMC) around to his thinking if he wants to cut rates, but others – like Marty Green of Polunsky Beitel Green – have highlighted the strong influence a Fed chair can have over other members.
“Generally [the FOMC] operates pretty unanimously for the most part, and I think that’s partly because there’s a protocol that if you’re on the fence about it or you see possibilities both ways, you have a tendency to vote with the chair,” Green told MPA in February.
“And I think that’s to some extent where that is going to come into play and be more important – those votes where people could see some case for cutting rates.”
But The Orlicki Group's Oliver Orlicki told MPA after Wednesday's Fed announcement that Warsh faces a tough road ahead as economic volatility continues to cloud the outlook.
"Unfortunately a lot of the inflation and employment reports are coming in hotter than expected, which are the two mandates the Fed wants to use to cut interest rates," he said. "So although we have a new Fed chair coming in, I'm not really sure how easy it's going to be for him to cut rates as quickly as other people want him to."
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