The Kevin Warsh Era: What a New Fed Chair Could Mean for Mortgage Rates

This week on the Breakdown, we discuss the Fed chair transition from Jerome Powell to Kevin Warsh and how the change could potentially affect the real estate industry—specifically, how it could affect mortgage rates. We’ll take a close look at what’s happening at the Federal Reserve, what kind of economic situation Warsh is inheriting, and how these changes could affect your rental portfolio.

What’s Happening at the Federal Reserve

On May 22nd, Kevin Warsh was officially sworn in as the new Federal Reserve chair, confirming him to the role for the next four years after Jerome Powell, the previous Fed chair, ended his second term. This change comes at a time of heightened economic uncertainty, as the war in Iran carries into its fourth month and pushes inflation rates up.

Warsh has had a career in finance for 30 years, serving on the Fed’s board of governors between 2006 and 2011—during the navigation of and recovery from the 2008 recession—and acting as former President George W. Bush’s advisor. Now, as Powell joins the board of governors, Warsh is stepping back into a position with the Fed after being hand-picked by President Trump.

"It's the honor of a lifetime to be called back into public service, and with this oath, I’ve accepted a high and solemn responsibility," Warsh said during his White House speech after being sworn in. "My goal now is to create an environment in which the best people can do their life’s best work, and to face every challenge in the spirit of common purpose and devotion to the national interest. In a word, to excellence."

President Trump also expressed excitement for Warsh’s term as Fed chair after having a notoriously negative view on Powell’s time in the role, even holding the ceremony at the White House for the first time since 1987. “I expect he will go down as one of the truly great chairmen of the Federal Reserve that we’ve ever had,” he said of Warsh, adding, “I want him to be independent and just do a great job. Don’t look at me, don’t look at anybody. Just do your own thing.”

The Economy Kevin Warsh is Stepping Into

“Doing his own thing” may prove to be a difficult task for Warsh as he takes the reins during the current U.S. economic climate. Inflation rates that were down to 2.4% in the early months of 2026 have since skyrocketed to 3.8% in April due to the ongoing conflict with Iran, pushing up costs for everyday Americans.

Because the war in the Middle East has involved blockage of the Strait of Hormuz, the price of crude oil has soared, causing gas prices in the U.S. to swell to well over four dollars per gallon, the general fear of an oil shortage to increase, global supply chain issues to arise, and mortgage rates to spike significantly. This panic has brought inflation up by almost a full point and a half over the past three months, leaving all eyes on Kevin Warsh and the Fed’s upcoming interest rate decisions.

[Click here to read our full breakdown on how the Iran war is affecting mortgage rates]

Warsh is also rejoining the Fed at a time of low consumer optimism toward the U.S. economy. According to a Mckinsey & Company survey comparing Q1 and Q2 consumer outlooks, anxiety over rising prices has increased by 6% in Q2, sitting in the top three concerns for 52% of respondents. Concern about the ability to make ends meet increased 2%, now a source of worry for 25% of respondents.

Political Pressure and Mortgage Rate Volatility

On top of pressure from the public to provide relief from rising costs, Warsh may also face political pressure from the president to lower interest rates. Though President Trump urged Warsh to remain independent, and though the Fed is an independent agency, political pressure from the presidential office was undeniably intense when Powell was Fed chair, and the same kind of pressure may be applied to Warsh, too.

Currently, Federal Reserve interest rates sit in the range of 3.50% to 3.75%, but Warsh seems to have big ideas and plans to change how the Fed operates and attempt to lower interest rates on the path to the Fed’s 2% target.

After the 2008 recession, the central bank ended up holding $2 trillion in mortgage bonds which significantly grew the Fed’s balance sheets, a move that Warsh seems to want to reverse. His theory is that by selling off bonds and simultaneously lowering interest rates, he can cancel out their opposing effects and avoid high costs or spikes in the market.

In a November op-ed for the Wall Street Journal, Warsh wrote, “The Fed’s bloated balance sheet, designed to support the biggest firms in a bygone crisis era, can be reduced significantly. That largesse can be redeployed in the form of lower interest rates to support households and small and medium-size businesses.”

Critics claim that this plan is untested and has the potential to increase mortgage rates regardless—economist Jake Krimmel argues that the markets may even go against Fed decisions if they think Warsh’s moves are a mistake:

“If markets think the Fed is making a policy error, like cutting while inflation is running hot, that mistake will get priced into the long end of the curve. Practically speaking, long-term yields would rise and mortgage rates would go up even as the Fed is cutting its policy rate.”

These new ideas would certainly be a change of pace for the Fed and would likely have sizeable effects on the market, but what those effects would be in practice are still an unknown—only time will tell if this theory will work for the U.S. economy.

Regardless, factors outside of Warsh or the Fed’s control could cause mortgage rate increases. As Krimmel pointed out, mortgage rates do not follow Fed decisions completely, and rates could still increase if lenders disagree with Fed decisions.

Other factors such as prolonged high inflation could push costs up further, especially if foreign wars like the conflict in Iran drag on through this year. Already, the war has caused 30-year mortgage rates to jump from 5.98% to 6.50%, and uncertainty will linger for mortgage rates the longer the conflict lasts.

Economists and Fed officials are anticipating potential rate increases for next month’s FOMC decision, with FOMC member and Dallas Federal Reserve President Lorie Logan stating during an El Paso speech, “I'm increasingly concerned that higher interest rates could be necessary later this year to fully restore price stability.”

In April, the Fed put out an official statement hinting at an “easing bias” on future rate decisions, a move that Logan disagreed with publicly as she believed a rate increase was just as likely as a cut.

Fed governor Christopher Waller agreed with Logan while giving a lecture in Germany, saying, “I would support removing the 'easing bias' language in our policy statement to make it clear that a rate cut is no more likely in the future than a rate increase.” Even so, he admitted that raising rates could potentially cause damage but still anticipates rates may increase before they come down.

What Comes Next for the Fed—and for Homebuyers

So, what’s the next move? The next FOMC meeting where rates will be decided will be in mid-June, and as mentioned, some economists are warning that rates have the potential to stay the same or increase—they likely won’t begin falling anytime soon, so mortgage rates likely won’t either. Of course, unexpected economic or global conflict changes could happen in the meantime, so no decisions can be predicted with certainty, but it’s best to exercise caution with any potential home purchases this summer as the Fed and our economy go through major transitions.