New Fed Chair Can't Control Rates Alone
44sDebunks a common misconception about the Fed chair's power, sparking curiosity and debate.
▶ Play ClipAI Summary
Dave Meyer, CIO of BiggerPockets and host of the On the Market podcast, discusses the potential impact of new Federal Reserve Chair Kevin Warsh on the housing market and mortgage rates. He clarifies that the Fed chair does not unilaterally set policy and that Fed rate decisions are not directly correlated with mortgage rates.
[00:16]
Fed Chair Doesn't Act Alone
Kevin Warsh, the new Fed chair, is one of 12 voting members on the FOMC. Monetary policy changes require consensus, which currently does not exist for lowering rates.
[00:43]
Current FOMC Stance
In the most recent meeting, 11 of 12 voters favored keeping the federal funds rate unchanged. One voter wanted a cut, while three indicated rates might need to rise.
[01:12]
Fed Funds vs. Mortgage Rates
The federal funds rate is not directly correlated with mortgage rates. Even when the Fed cuts rates, mortgage rates may not move or could even rise.
[01:38]
Bond Market Correlation
Mortgage rates are much more closely correlated with the bond market than with Fed policy.
The new Fed chair's influence on mortgage rates is limited by the need for consensus and the indirect relationship between Fed policy and mortgage rates, which are driven more by the bond market.
Mentioned in this Video
Study Flashcards (3)
How many voting members are on the FOMC?
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How many voting members are on the FOMC?
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12
00:28
What was the vote count in the most recent FOMC meeting regarding the federal funds rate?
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What was the vote count in the most recent FOMC meeting regarding the federal funds rate?
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11 of 12 voted to keep rates unchanged; one wanted a cut; three indicated rates might need to rise.
00:43
Is the federal funds rate directly correlated with mortgage rates?
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Is the federal funds rate directly correlated with mortgage rates?
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No, it is not directly correlated; mortgage rates are more closely correlated with the bond market.
01:12
💡 Key Takeaways
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Consensus Required for Fed Policy
Clarifies that the Fed chair cannot unilaterally change rates, countering common misconceptions.
00:28
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Fed Cuts Don't Guarantee Lower Mortgage Rates
Highlights a key disconnect that affects homeowners and investors.
01:12Full Transcript
[00:02] Dave Meyer. He is the CIO of BiggerPockets and also the host of the On the Market podcast. Dave, good morning. Good to see you. might some of the different policies that are going to be up and coming
[00:16] really affect the housing market and those expectations? What do we know about some of the changes that may be happening? It's important to remember two things here. First and foremost, Kevin Warsh, the new chairperson,
[00:28] does not unilaterally decide monetary policy. He is one of 12 voting members policy. He is one of 12 voting members on the FOMC, and in order for changes to happen at the Federal Reserve, consensus has to be created. And right now, that
[00:43] does not exist in terms of lowering rates. We had 11 of the 12 voters in the most recent meeting vote to keep the federal funds rate where it was. There was one voter who wanted to cut rates, but there were three who indicated that
[00:58] rates might actually need to go up in the near future. So, the direction of monetary policy is unclear even though we are getting a new Federal Reserve The second thing to remember, at least as it pertains to the housing market, is
[01:12] that the federal funds rate, which is the one interest rate that the Federal Reserve controls, is not directly correlated with mortgage rates. We've seen in recent years, even when the Fed cuts rates, mortgage rates might not
[01:25] move. Sometimes they actually go up. And I think that's the important thing for people to remember, that Fed policy does not directly translate to mortgage rates. Mortgage rates are much more closely correlated with what's going on
[01:38] closely correlated with what's going on in the bond market.
