Is Warsh a Trump puppet?

Trump wants lower interest rates. Jerome Powell, the current chairman of the Federal Reserve has not been cooperative and that has made for some Real Housewives level drama in Washington. For better or worse, Powell’s term ends this May. This morning Trump announced his replacement – but does it even matter? Or will this person just be a figure head for Trump to do the job himself? 

Kevin Warsh is not always described as a Trump loyalist. And the Central Bank, our Federal Reserve, is supposed to be politically independent. But, Trump has been showering his affection upon Warsh for a few years because he believes they share priorities, specifically on bringing interest rates down. They’ve been aligned in terms of public comments on economic growth, Powell’s efficacy as Fed chair and interest rates. Kev’s father-in-law, Ronald Lauder, is a longtime Trump ally.  

Is he more or less credentialed for the role than RFK was/is a Secretary of Health? 

Warsh has already served as a Fed governor back during the Bush administration. He’s a Wall Street vet and Republican insider. To cut to the chase, analysts are prediction he will be less politically independent than Powell was but potentially maybe not a puppet. Warsh comes to this appointment having already built a reputation in the Econ world and is seen by markets as someone who does care about the credibility of the Fed. 

Market Reaction to the news. 

Which is probably why the immediate reaction to his new role was mixed. The Dow opened down and bond markets wobbled, with yields on Treasurys rising slightly. Interest rates aren’t too hurt so far but it was definitely a cautious, maybe even unsettled, reaction with most asset classes pricing in uncertainty about what this will mean for inflation.  

What does it mean for housing? 

Fed leadership influences mortgage rates indirectly. If the fed leans towards more rate cuts on the Federal Funds rate under Warsh, that will ultimately lead to lower long term borrowing costs as well. (read: 30-year fixed mortgage interest rates) If the Fed continues to focus on inflation control, both short- and long-term rates are likely to stay steady. Here’s the key though, even before the Fed does anything – the anticipation and expectations, the speculation moves markets. We saw this over the past few weeks with buyer activity in response to Trumps $200B announcement. Investors reprice mortgage-backed securities based on expectations. Sellers start packing in anticipation. 

Mortgage interest rates are sensitive AF. They move on vibes rather than waiting for policy shifts. The story is changing right now in real time regarding buyers, sellers, housing in America. Stories move markets faster than math. 

Inside Warsh’s head. 

Let’s talk about the gaps between the rhetoric and reality. I can’t get enough of that line from Mark Carney. Warsh has publicly echoed Trump on calls for lower interest rates. Historically, on the other hand, he has been more hawkish on inflation. It’s hard to predict what stance he will take but we can certainly say he has a fine line to walk if he wants to maintain the credibility of his role and the central bank (which he has said he does). Because Trump likely won’t be quiet about criticizing him if he doesn’t give him the rates he wants. 

What happens between now and May? Is Jerome Powell officially a lame duck? Commentators have been calling him one for a while honestly since his term was wrapping. So I would say in terms of market psychology, he’s out. In terms of short-term decisions, like the next Fed meeting – he’s still in charge and has influence over decisions. In the real estate space we need to monitor those treasury yields to see if traders are pricing in more cuts or pauses from the Fed. It wouldn’t hurt to tune into the Senate confirmation hearings for Warsh either – he might give us some signals on rate cuts and his views on Fed independence. 

For my buyers out there, I want to be very direct. Stop waiting for a version of the market that requires political incentives or policy change. When those materialize, your window will have closed. And for my realtor besties, this is such an amazing moment to take the lead. To direct the conversation. Our clients need help separating signals from noise and I would love to help you position yourself at the intersection of psychology and policy, so you can explain what’s going on with the real estate market right now.