The Federal Reserve has a new chair. But the math hasn’t really changed. Kevin Warsh was confirmed by the Senate and takes over an institution wrestling with inflation that ran 3.8% in April, the highest reading in nearly three years, pushed up by an energy shock the Fed cannot resolve with policy. Warsh’s first FOMC meeting will come in mid-June. Markets that were pricing in two cuts this year are now pricing in roughly none, with better chances of a small hike (25 bps) than chances of a cut.
The constraints on the Fed, and Warsh, are structural. The Fed chair is one vote out of twelve. The committee was already split before Warsh arrived, with four dissents at the April meeting, the most in over thirty years. A new chair sets the tone and agenda but cannot cut rates in a press conference.
There is a follow-on effect that I’m watching closely. Since the Fed began cutting in September 2024, the federal funds rate has come down meaningfully. Mortgage rates are generally priced off the ten-year Treasury, and the ten-year has drifted up. The thirty-year mortgage today sits just a hair below where it was a year ago. For anyone underwriting a property or holding one for cash flow, that gap matters more than any forecast about what the Fed does next.
A new Fed chair changes the conversation. It will certainly drive some headlines. It does not change the underwriting. The most durable financial habits are the ones built around what you control, and those habits compound regardless of what happens on Constitution Avenue.
– Jeromee Johnson, President
