Trump's Fed Nominee Kevin Warsh Champions Unconventional Path to Cheaper Mortgages

WASHINGTON—In a move that could redefine the U.S. central bank's post-crisis role, President Donald Trump has tapped former Federal Reserve Governor Kevin Warsh as his nominee for Chair of the Federal Reserve. The announcement sets the stage for a potential philosophical overhaul at the world's most influential financial institution.

Trump, who has repeatedly voiced his preference for aggressive monetary easing, expressed strong confidence in his nominee. "He will never let you down," the President stated, underscoring a shared priority: significantly reducing mortgage rates to address housing affordability without triggering a decline in home values.

Warsh, who served from 2006 to 2011 during the depths of the financial crisis, brings a complex record to the role. Historically viewed as a policy "hawk" skeptical of easy money, he has since become a vocal critic of current Chair Jerome Powell, calling for a "regime change" away from crisis-era tools. His recent pivot to advocate for rate cuts places him in alignment with Trump's desires, but his proposed method is anything but conventional.

While the Fed directly controls only short-term interbank lending rates, its policies profoundly influence the mortgage market. The conventional toolkit includes adjusting the federal funds rate and using forward guidance. Warsh, however, argues these very tools are part of the problem.

In recent interviews and op-eds, Warsh has laid out a contrarian thesis. He contends that the Fed misunderstands inflation, attributing it not to consumer spending or wage growth, but to excessive government spending and monetary expansion. "At the core, I think inflation comes about when the government spends too much and prints too much," Warsh told Barron's.

His solution is paradoxical: to create room for lower interest rates, the Fed must first halt the "printing press" and aggressively shrink its $6.6 trillion balance sheet—a portfolio swollen with Treasury notes and mortgage-backed securities (MBS) from past stimulus efforts. "That largesse can be redeployed in the form of lower interest rates to support households and small and medium-size businesses," he wrote in The Wall Street Journal.

This stance puts him at odds with many economists. Notably, Warsh has suggested selling the Fed's $2 trillion in MBS holdings—a move some analysts warn could temporarily spike mortgage rates by flooding the market. This contrasts sharply with calls from some banking groups for the Fed to buy more MBS to压低 rates.

"Warsh is proposing to dismantle the very architecture the Fed built post-2008," said Realtor.com® senior economist Jake Krimmel. "This is not a crisis environment where the chair naturally accumulates outsized authority... Building consensus will be exceptionally difficult." The Federal Open Market Committee's recent decision to hold rates steady signals existing skepticism toward further cuts.

If confirmed, Warsh's challenge will be to persuade fellow policymakers that a return to a simpler, pre-2008 operational model can sustainably lower long-term rates by tackling what he sees as the monetary roots of inflation. The debate will center on whether this unorthodox vision represents a needed correction or a risky departure from proven crisis-fighting tools.

Voices from the Street

Eleanor Vance, Portfolio Manager at Sterling Trust: "Warsh's analysis is refreshingly focused on monetary fundamentals. For too long, the Fed has used blunt instruments that distort markets. A leaner balance sheet could restore healthier price discovery in the long run."

Marcus Thorne, Housing Advocate at Home for All Coalition: "This is terrifying. Selling MBS could make mortgages more expensive right now for families already struggling. It's an ideological experiment using the housing market as a lab rat. We need practical relief, not theoretical purism."

Dr. Aris Gupta, Economics Professor at Carlton University: "The proposal highlights a legitimate debate about the Fed's bloated footprint. However, the transmission mechanism from balance sheet reduction to lower mortgage rates is indirect and unproven. The immediate market volatility could outweigh any theoretical long-term benefit."

Janet Ribbon, Small Business Owner (Café Owner, Ohio): "I don't follow the dots and plots, but I know my loan rates. If this means cheaper credit for me to expand and for my customers to buy homes, I'm for it. The old way hasn't fixed the affordability crisis."