What They Mean for Housing

President Donald Trump now has a short list of five final candidates to replace Federal Reserve Chair Jerome Powell, and his ultimate selection will have major implications for the housing market and the broader economy.

Although Trump has repeatedly threatened to fire Powell, whom the president himself appointed during his first term, Powell seems destined to fill out his full term as chair, which expires in May.

Trump has said he might announce his pick for the next Fed chair by the end of the year, and earlier this week, Treasury Secretary Scott Bessent announced a short list of five finalists for the role.

Two are widely considered to be front-runners: Kevin Warsh, a former Fed governor appointed by George W. Bush, and Kevin Hassett, who is director of the White House National Economic Council and Trump’s closest adviser on economic issues.

Other contenders include Christopher Waller, a current Fed governor appointed by Trump, and Michelle Bowman, another Trump-appointed Fed governor who also serves as the vice chair for supervision, overseeing the Fed’s banking regulation and enforcement duties.

The other finalist, BlackRock investment executive Rick Rieder, is a dark-horse candidate who would bring an outsider’s perspective to the marble hallways of the Fed’s headquarters in Washington, DC.

Bessent says he plans to conduct a further round of interviews with the candidates and present his final slate of potential nominees to Trump after Thanksgiving. Trump’s choice will face confirmation in the Senate, where his Republican Party holds the needed majority.

Trump’s ultimate selection will be tasked with carrying out the Fed’s dual mandate of price stability and maximum employment. The Fed uses higher interest rates to fight inflation, and lower rates to boost the job market.

On Wednesday, the Fed cut its policy rate for the second month in a row. Mortgage rates have been falling in anticipation of the cuts, but are set to rise again after Powell cast doubt on another cut in December, citing deep divisions among policymakers and uncertainty due to the government shutdown.

The various finalists for the next Fed chair have expressed a range of views on how to achieve those goals, with some deeply critical of Powell’s approach.

All five favor lower interest rates to some degree, in keeping with Trump’s desire for easy money, which juices the economy and reduces government borrowing costs.

“Ideally, the chair is someone who can encourage open debate that considers a wide range of perspectives,” says Realtor.com® Chief Economist Danielle Hale. “At the same time, at the end of the discussion, the chair needs to be able to drive the committee to a decision, ideally one supported by a large majority.”

Michelle Bowman, incoming vice chair for supervision at the U.S. Federal Reserve, arrives for a Psaros Center for Financial Markets and Policy event at Georgetown University in Washington, DC, on June 6, 2025. (Photographer: Graeme Sloan/Bloomberg via Getty Images)

Bowman, who has served as a Fed governor since 2018, has called for lower interest rates, expressing specific concern over the state of the U.S. housing market.

Speaking at the Kentucky Bankers Association Annual Convention last month, Bowman warned that the housing market was at risk of falling into a downward spiral, with broader risks for the economy.

“Declines in housing activity, including single-family home construction and sales, have been accompanied by higher inventories of homes for sale and falling house prices, suggesting that housing demand has also weakened,” Bowman said. “Elevated mortgage rates may be exerting a more persistent drag as income growth expectations have declined while house prices remain high relative to rents.”

Bowman noted that existing-home sales have remained depressed since 2023, with many buyers priced out of the market and unable to afford a home.

“I am concerned that, in the current environment, declines in house prices could accelerate, posing downside risks to housing valuations, construction, and inflation,” she said.

Like Waller, Bowman was an early proponent of cutting rates this year, dissenting in favor of a cut during the vote in August.

“With inflation on a sustained trajectory toward 2%, softness in aggregate demand, and signs of fragility in the labor market, I think that we should start putting more weight on risks to our employment mandate,” Bowman said in a statement on her dissent.

Kevin Warsh, former governor of the U.S. Federal Reserve, during the International Monetary Fund and World Bank spring meetings at the IMF headquarters in Washington, DC, on April 25, 2025 (Photographer: Tierney L. Cross/Bloomberg via Getty Images)

Warsh, who served as a Fed governor from 2006 to 2011 during the depths of the Global Financial Crisis, advocates for what he calls “regime change” at the Fed.

In public comments, Warsh has promoted more aggressive rate cuts and substantial reform of the Fed’s policy framework, saying current policies are holding down economic growth and causing a housing recession, with first-time homebuyers struggling to afford a home.

Warsh has been harshly critical of the Powell-run Fed, accusing policymakers of repeatedly missing the mark on interest rates and operating under the wrong assumptions about inflation.

“They believe that inflation is driven by consumers, by wages that are rising too much, and consumers that are spending too much,” Warsh told Barron’s in a recent interview. “I fundamentally disagree. At the core, I think inflation comes about when the government spends too much and prints too much.”

Warsh says that by turning off what he calls the monetary “printing press,” or the Fed’s ability to increase the monetary supply by purchasing securities, “you have created space to lower interest rates.”

As part of the philosophy, Warsh has suggested he believes the Fed should sell off its $2 trillion hoard of mortgage-backed securities (MBS). However, there are reasons to believe that move would push mortgage rates higher, at least for a time.

The Fed went on an MBS buying spree during the COVID-19 pandemic as a measure to stabilize financial conditions, and some economists believe that move helped push mortgage rates down to record lows below 3%.

Some banking groups and bond experts have actually called on the Fed to buy more MBS as a measure to bring mortgage rates lower. However, from his comments, Warsh seems firmly opposed to that idea, and instead favors selling off the Fed’s remaining MBS holdings.

Warsh believes that by eliminating the Fed’s role in securities markets, the central bank would have more breathing room to lower its policy rate, the main tool it uses to influence borrowing costs, ultimately bringing mortgage rates lower.

Kevin Hassett, director of the National Economic Council, arrives to speak to members of the media outside the White House in Washington, DC, on Oct. 24, 2025 (Photographer: Francis Chung/Politico/Bloomberg via Getty Images)

Hassett is director of the National Economic Council and arguably the economist with the closest relationship to Trump, which has raised questions about the Fed’s independence if he is selected.

By law and tradition, the Fed has long been structured to remain free from political influence, tasked with carrying out its dual mandate of stable prices and maximum employment.

Central bank independence is important because, historically, maintaining artificially low interest rates for political reasons often leads to runaway inflation and capital flight, ultimately driving government borrowing costs higher in the long run as investors lose confidence.

Hassett, in a recent interview with Politico, said he viewed Fed independence as “essential,” but added that independence should be measured by actions, not by whether the Fed chair speaks with the president.

“An independent Fed is very transparent. What it tells you, ‘This is what we think the economy is going to look like’—they tell you why. They show you their models. They encourage debate about,” he said. “I think the Fed is still kind of this thing that’s like the Wizard of Oz behind the curtain. And that, you know, is something I think, in today’s age, should change.”

On policy, Hassett has indicated he supports a slow and steady pace of cuts taking interest rates to “neutral,” or the level that neither stimulates nor restricts the economy. But he has not indicated what he believes the neutral rate is, which is a matter of debate.

Hassett described the Fed’s quarter-point rate cut in September as “prudent,” emphasizing the importance of a data-driven approach.

Rick Rieder, global chief investment officer of fixed income at BlackRock Inc., speaks during a Bloomberg Television interview in New York on Oct. 7, 2016 (Christopher Goodney/Bloomberg via Getty Images)

Rieder, BlackRock’s chief investment officer for bond trading, has advocated for immediate and substantial rate cuts, arguing that Powell’s rate policy is hurting low-income Americans and reducing housing affordability.

“The housing market is stuck, whether it’s building permits, mortgage applications, new-home sales, housing starts,” he told Bloomberg last month. “We need to bring down housing costs. We need to bring down affordability of homes.”

Rieder believes that quickly lowering the Fed’s short-term interest rate would result in lower long-term rates, such as for mortgages, bringing down housing costs and thereby reducing inflation.

“If you bring the mortgage rate down, you’ll actually build more homes in this country. So homebuilders don’t have to subsidize the mortgage. You actually bring down shelter inflation, which has been sticky,” he said.

Shelter inflation accounts for roughly a third of the consumer price index, and, like Rieder, some economists have argued that higher interest rates have paradoxically kept those shelter costs high, contributing significantly to the overall elevated inflation that the Fed is trying to combat.

In addition to swift rate cuts, Rieder has hinted at more active Fed participation in securities markets to bring down long-term interest rates.

“There’s a series of tools that the Treasury can implement, series of tools that the Fed can implement to be thoughtful about, how do you manage further out the yield curve, as opposed to just we move the funds rate in moderate increments?” he told Bloomberg. “There’s a lot of tools at play to try and contain where the back-end interest rates are related.”

While Rieder didn’t specify which “tools” the Treasury and Fed might use, he could be referring to direct Fed intervention in the bond market, such as by strategically purchasing longer-term Treasury securities to achieve lower yields, known as yield curve control (YCC).

YCC differs from the Fed’s emergency bond-buying sprees during the financial crisis and the pandemic: Instead of targeting a certain level of asset purchases to support liquidity, purchases are tailored to support a specific interest rate.

That more active approach would be in keeping with Rieder’s background as a top bond trader, but stands in contrast to Warsh’s view that the Fed should clear out its balance sheet and refrain from buying securities.

Yield curve control would offer a much more direct way for the Fed to influence mortgage rates, but the risks of that approach are well-established from past experiences in the U.S., Japan, and Australia.

If investors perceive that the Fed is overly focused on suppressing yields to manage government financing costs, it could lead to a loss of confidence that the central bank will keep a lid on inflation.

Yield curve control also risks distorting valuable market signals from the Treasury market, and can be a very difficult policy to exit, leading to violent gyrations in bond markets when the central bank ends its intervention.

Christopher Waller, governor of the U.S. Federal Reserve, speaks during a Fed Listens event on March 22, 2024, in Washington, DC. (Photo by Al Drago/Getty Images)

Waller, an economist who has served as a Fed governor since 2020, favors cautious but ongoing interest rate reductions.

Over the summer, he was an early proponent of cutting rates, dissenting in favor of a cut at the August meeting.

“I’m still in the belief we need to cut rates, but we need to kind of be cautious about it,” he told CNBC in October. “I want to move toward cutting rates, but you’re not going to do it aggressively and fast, in case you make a big mistake on which way that things go.”

Waller has expressed concern that the economy is currently sending mixed signals, with job growth slowing but overall GDP expanding healthily.

He favors cautious rate cuts to prevent a rapid deterioration of the labor market, while carefully monitoring all available data to avoid overshooting.

“I will be looking for how the solid GDP data reconcile with the softening labor market,” he said in recent remarks at the Council on Foreign Policy in New York. “What I would want to avoid is rekindling inflationary pressure by moving too quickly and squandering the significant progress we have made taming inflation.”

Waller has said he believes the Fed’s neutral rate is roughly in a top range of 3% to 3.25%.

Overall, his selection as Fed chair would represent a steady hand and cautious approach, likely leading to gradually lowering interest rates on mortgages.