Kevin Warsh is set to be sworn in as Federal Reserve chair on Friday, but homebuyers expecting an immediate drop in mortgage rates may be disappointed. Despite President Trump's campaign promise to push rates to 3% or lower, they remain stubbornly above 6%. The transition comes at a critical juncture: core inflation has accelerated to 3.2% year-over-year, driven by 25% tariffs on Chinese imports and a 15% surge in oil prices following the Iran conflict. Financial markets, which initially cheered Warsh's nomination, have tempered expectations as they assess the FOMC's composition. Of the 12 voting members, at least 7 are considered hawks, including Cleveland Fed President Loretta Mester, who has argued that "patience is the right virtue" amid inflation uncertainty.

Last month, the FOMC voted 8-4 to keep rates unchanged at 3.50%-3.75%. Meeting minutes released this week reveal widespread concern about persistent inflation, driven by tariffs and oil price shocks from the Iran conflict. Almost all members "noted an increased risk that inflation would take longer to return to the Committee's 2% objective than they had previously expected," the minutes state. The internal debate was more heated than the vote suggests: several hawkish members argued the Fed should even consider a rate hike if inflation does not show clear signs of cooling. On the other side, more dovish members, led by Chicago Fed President Austan Goolsbee, pointed to a cooling labor market—the unemployment rate rose to 4.3% in April—as justification for a preemptive cut.

“Warsh's arrival doesn't mean rate cuts are coming automatically; even Fed rate cuts might not bring mortgage rates down.”

By the Numbers