CHM Blog

The Fed's new chief opts for credibility

For an institution famous for hedging every word, the Fed just said something remarkably blunt. The Committee will deliver price stability. No qualifiers, no forward guidance, no hedging. As Realtor.com's Keith Griffith reports, it's a flat declaration that landed like a door closing.

That's the new tone at the Federal Reserve under Kevin Warsh, who joined a unanimous 12-0 vote on Wednesday to leave interest rates unchanged. Jerome Powell, whose term as chair expired last month but who remains on the Fed's board, voted right alongside him. It made for an odd scene. Trump's handpicked successor, voting in lockstep with the very man Trump spent months criticizing for refusing to cut rates deeply enough.

The reason for the pause is simple: inflation made a cut politically and economically impossible. According to Realtor.com senior economist Jake Krimmel, Warsh walked into this meeting facing a credibility test. "He has nailed his credibility to the mast of taming inflation," Krimmel says, "albeit by his own standards that could change."

The Fed's benchmark rate stays in its current range where it's sat since December following three rate cuts last fall. What's changed is the outlook. Projections released alongside the decision show the median FOMC member now expects the policy rate to climb a quarter point by year-end, before easing back by the end of 2027. Markets are now pricing in a real chance of a hike before December, a sharp reversal from earlier this year, when no one on the committee had a hike penciled in at all.

For homebuyers, that means little near-term relief. Mortgage rates will likely hover around their current level, and could climb further if inflation doesn't cooperate. May's consumer price index came in at its hottest reading since 2023, driven largely by an energy shock tied to the war in Iran.

Warsh, who has promised "regime change" at the Fed, used his first press conference to lay out something bigger than one rate decision. He's launching five task forces to overhaul how the central bank operates, covering communications, the balance sheet, the data the Fed relies on, the effects of AI on jobs and productivity, and the inflation framework itself. "A Federal Reserve that is clear-eyed about its mission, fit for purpose, and focused on the future," is how he described the goal.

He also broke with tradition in a smaller but telling way. Warsh declined to submit his own projection to the Fed's closely watched dot plot, the chart showing where each official expects rates to head. He encouraged his colleagues to keep submitting theirs, but said offering his own "is not helpful in the conduct of policy." It's a quiet but pointed signal that any conversation about where rates are going now happens without the chair's view on the table, at least for now.

Despite criticizing the Fed in the past for over-communicating, Warsh confirmed the post-meeting press conference tradition will continue. The task forces, he said, will spend the rest of the year reviewing current practices and proposing reforms, including a broader look at whether things like meeting transcripts and the dot plot itself still make sense in their current form.

Realtor, TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are under some pressure today. The MBS market worsened by -1 bps last week. This was not enough to increase mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Neutral

These are the three things that have the greatest ability to impact rates this week. 1) Inflation, 2) Geopolitical, and 3) The Fed.

1) Inflation: We get the Fed's key measure of inflation on Thursday with PCE and Core PCE along with Personal Incomes and Spending. The Core YOY PCE is expected to rise from 3.3% to 3.4%, any reading above that will be very negative for rates.

2) Geopolitical: It appears that things are still moving forward with Iran/US, which of course can change quickly and long bonds will be sensitive to any meaningful changes in trajectory. UK has lost it PM.

3) The Fed: Former Chair Alan Greenspan has passed away at the age of 100. This week will place heavy weight on the messaging from the Fed speakers after last week's FOMC meeting and the emphasis on Inflation.

This Week's Potential Volatility: High

This morning markets have started under pressure due to inflation worries. Volatility has started high and could easily stay that way all week.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.