Powell is done. Will Warsh help with mortgage rates?

Jerome Powell’s tenure as Federal Reserve chair is coming to an end as the Department of Justice (DOJ) has ended its investigation of alleged cost overruns on the Fed headquarters’ renovations.

This paves the way for Kevin Warsh to head the Fed — maybe as soon as May. The timing couldn’t be more perfect, as yesterday’s HousingWire Daily podcast was a solo act by me in trying to explain how Warsh can help with mortgage rates, something President Donald Trump wants to happen as soon as possible.

Before I address this topic, I want to give you my take on rates.

Mortgage rates and bonds

Since 2015, whenever I do my mortgage rate forecasts, I never target rates first. I target where I believe the 10-year Treasury yield can range for a calendar year, and how mortgage rates can range in that forecast.

In the 2026 HousingWire forecast, I anticipated the following ranges:

• Mortgage rates between 5.75% and 6.75%
• The 10-year yield fluctuating between 3.80% and 4.60%

This is based on my slow dance theory, which I have promoted for years — that 65% to 75% of the range for the 10-year yield and mortgage rates is due to Fed policy and how it guides the market. I often reference this chart to prove my point on the relationship between the 10-year yield and mortgage rates.

As you can see below, the trend with the fed funds rate and the 30-year mortgage is similar.

The final piece of the puzzle is mortgage spreads, the difference between the 10-year yield and the 30-year mortgage rate. The spreads were as high as 3.11% in 2023 and gradually got to a low of 1.82% in 2026.

When I talk about wanting the slow dance to be more intimate, it means that as the spreads compress, the gap between the 10-year yield and 30-year mortgage rate gets closer, giving us lower rates for longer than before.

With that in mind, what about Warsh? Can he really cut rates?

No, he can’t cut rates by himself, but he will have a much different tone about rate cuts than Powell and will sound more dovish. All of this is likely to change if and when a Democrat is in the White House, but the fact that Warsh will be more dovish doesn’t matter; there are limits to his power due to the voting power of the Federal Open Market Committee.

If the labor market does weaken further, Warsh will be much more deliberate about trying to cut rates than Powell, and he will stay this way until Trump leaves office. So, for now, it’s a positive for mortgage rates, but it still needs more data to justify more rate cuts than were already priced into the markets before the Iran war started — which were only two or three at best.

All in all, not shocking news from the DOJ that they’re dropping the Fed probe. This is the only way to get the Senate to confirm Warsh, which is what Trump wants.

But we all need to be realistic on what can happen here, especially as the war persists and oil prices are elevated. Still, it should be better for the housing market if the Fed chair talks about housing needing help than to deflect these questions.