Published by Forbes.com | August 13, 2025
Homebuyers and homebuilders alike are rooting for interest rates to come down, and many see the potential replacement of the Fed chair as a path to that outcome.
If Federal Reserve Chairman Jerome Powell is replaced before or at the end of his term in May 2026, the likely course of interest rates will largely depend on which candidate President Trump selects and how successfully they can navigate the competing pressures of political expectations versus economic reality. Rates on construction loans and mortgage rates will likely move differently, with construction financing potentially seeing faster relief due to its closer ties to Fed policy rates, while 30-year mortgage rates may remain elevated due to inflation concerns and term premium adjustments.
Leading Fed Chair Candidates and Their Attitudes
Trump has expanded his initial shortlist to include several candidates, each with distinct monetary policy philosophies:
Christopher Waller (Current Fed Governor) – Has emerged as the leading candidate with 50% odds on prediction markets. Waller recently dissented from the Fed’s July decision to hold rates steady, advocating for a 25 basis point cut. He argues that monetary policy is “excessively cautious” and believes the Fed should act proactively based on forecasts rather than waiting for backward-looking data.
Kevin Hassett (National Economic Council Director) – A Trump loyalist who advocates for lowering rates by 1-1.5 percentage points to move policy from restrictive to neutral. Despite his political alignment with Trump, Hassett has emphasized the importance of Fed independence, stating that “everyone at the White House recognizes the critical importance of the Fed’s independence”.
Kevin Warsh (Former Fed Governor) – Has called for “regime change” at the Fed and supports aggressive rate cuts, arguing that the central bank’s hesitation to cut rates “reflects poorly on them”. Warsh represents a more radical policy shift, advocating for substantial departures from current Fed approaches.
Likely Scenario: Construction rates could decline by 1.5-2.5 percentage points within 12-18 months of a new chair taking office. This reflects:
- Direct correlation with the federal funds rate, which Trump wants reduced from 4.25-4.5% to potentially 1%
- Construction loans’ variable rate structure makes them more responsive to Fed policy changes
- Current construction loan premiums of 200-400 basis points over the fed funds rate could compress as credit conditions ease
Timeline: Construction financing relief would likely begin within 6 months of a new chair’s appointment, as these rates adjust quickly to Fed policy changes.
Long-Term Rates (Such as 30-Year Mortgages)
30-year mortgage rates, currently averaging 6.6-6.9%, face a more complex trajectory due to their sensitivity to inflation expectations and term premiums:
Initial Response: Mortgage rates might initially decline by 0.75-1.0 percentage point following announcement of a dovish Fed chair, as markets price in expected policy easing.
Medium-Term Challenges: However, several factors could limit sustained declines:
- Inflation Concerns: Trump’s tariff policies could reignite inflation pressures, keeping long-term rates elevated
- Credibility Premium: Markets may demand higher term premiums if Fed independence is perceived as compromised
- Treasury Market Dynamics: 10-year Treasury yields, which drive mortgage rates more than Fed policy, may remain elevated due to fiscal concerns
Realistic Range: 30-year mortgage rates likely settle in the 5.5-6.3% range by late 2026, representing modest improvement from current levels but remaining well above pandemic-era lows.
