President Trump announced Friday that Kevin Warsh is his choice to succeed Jerome Powell as Fed chair.
Takeaway: The president’s choice to nominate Kevin Warsh is a “business as usual” pick who should inspire confidence from markets and his colleagues. The housing market should expect mortgage rates to hold steady; this nomination won’t push rates up or down.
Financial markets and fellow Federal Reserve colleagues are getting a familiar face who has long been thought of as serious on inflation and a potential Federal Reserve chairman. Kevin Warsh served as a Fed Governor during the financial crisis alongside Ben Bernanke. He was well known for being worried that the continued use of quantitative easing as a way to keep rates lower would stoke inflation. More recently, he has publicly advocated for lowering rates faster, arguing that higher tariffs were not as significant a threat to inflation as some feared.
To lead effectively, it is absolutely essential that the Federal Reserve Chairman inspires confidence from markets, and from his eleven colleagues who also vote on interest rate decisions–and from the U.S. Senate, which must confirm his nomination. The Senate has recently shown a willingness to protect the Fed’s ability to independently look out for the economy’s long run interests–that is, keeping inflation in check. With the exception of Governor Miran, the other voting members of the Federal Open Markets Committee (FOMC) have generally shown little willingness to lower rates too quickly and would likely not go along with a chairman who favored fast rate cuts. For the housing markets and mortgage rates, the chairman’s ability to keep bond markets from sending long term rates higher for fear that inflation would spiral is paramount as bond investors ultimately determine mortgage rates.
The housing market has been largely stuck recently because of concerns about the job market, affordability and policy uncertainty. Buyers have backed off despite lower mortgage rates because the economic backdrop has deteriorated and sellers have backed off, too, because the demand isn’t there. Guiding the economy along to a soft landing where the labor market stays intact, inflation remains controlled, and consumers feel less uncertain would boost the housing market.
Chen Zhao
Chen Zhao is the head of economics research, where she produces research on the housing market for public and internal audiences.
Previously, she was an executive director leading housing finance and financial markets research at the JPMorgan Chase Institute. Prior to joining JPMCI, Chen was an economics consultant at Analysis Group, Inc., where she worked on financial litigation cases and led teams conducting health economics and outcomes research on behalf of pharmaceutical companies.
While in graduate school, Chen was with the Center for Economic Studies and the Social Economic and Housing Statistics Division at the US Census Bureau, where she conducted applied microeconomics research using large scale restricted-access linked survey-administrative data. She started her career at the White House Council of Economic Advisers, where she focused on labor and health economics.
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