As rhetoric about incoming Federal Reserve Chair Kevin Warsh has investors dreaming about basement-level interest rates, the words of hip-hop legends Public Enemy could be worth remembering: “Don’t believe the hype.”
“We can lower interest rates a lot, and in so doing, get 30-year fixed-rate mortgages so they’re affordable, so we can get the housing market to get going again,” Warsh, a former member of the central bank’s Board of Governors and an outspoken Fed critic, told Fox Business in 2025.
Warsh’s low-interest-rate stance seems to have secured him President Trump’s nomination. “He certainly wants to cut rates, I’ve been watching him for a long time,” President Trump said on Jan 30.
“He will go down as one of the great Fed chairmen, maybe the best. On top of everything else, he is central casting and will never let you down,” Trump wrote on his Truth Social platform.
Only Modest Cuts Expected
There are, however, a few steps to go before Warsh becomes chair in May, and then more steps are involved in lowering rates based on inflation, the economy, jobs, and the housing market. It seems inevitable that there will be some rate lowering, but how much is unclear.
According to a recent Forbes forecast, based on Fed signaling, rates are unlikely to drop much lower for the remainder of the year, with one or two modest cuts expected. It’s a reminder that, despite the hype around Warsh, he won’t be waving a rate-cut magic wand, ushering in a return of bidding wars and price hikes.
Trump’s Expectations vs. Reality
Trump’s full-court press for lower rates will run up against a few realities that could frustrate the president and drag out meaningful cuts far longer than he hopes. Warsh will not chair a Fed meeting until June, the New York Times notes, adding that any aggressive cut agenda would roll out gradually after that.
“He’s going to try to thread the needle of respecting President Trump’s wishes and at the same time, respecting institutional processes,” Dennis Lockhart, a former coworker with Warsh at the central bank when he served as president of the Federal Reserve Bank of Atlanta between 2007 and 2017, told the Times. “Believe me, that’s going to be quite the tap dance. It’s going to be Fred Astaire as central bank chair.”
Inflation: The Numbers Don’t Lie
The Wall Street Journal reports that Warsh essentially has the same priorities as the outgoing Jerome Powell: easing inflation back down to 2%, while shrinking the Fed’s balance sheet, fielding White House pressure, and preserving the Fed’s credibility. While Warsh will be keen to make a fast and favorable impression by doing what’s hoped for with interest rates, the numbers don’t lie, and he will still have to work within a data-dependent framework.
Reuters echoed that sweeping rate cuts may not be on the agenda as the president hopes, recalling that Powell was the president’s pick in 2017—who then, not even six months later, was called “clueless.” Trump’s insults have only worsened since then.
Trump himself acknowledged the rapid trajectory from praiseworthy to pariah that his Fed picks seem to engender. “Everyone that I interviewed is great,” he said in Davos last month. “Problem is, they change once they get the job.”
And Warsh will not want to sully his reputation by pandering. “Kevin will only push for large interest rate cuts if he thinks they make sense,” Michael Boskin, who works at the Hoover Institution and formerly worked with the George W. Bush administration, told the New York Times. “He’s going to form his own judgments.”
What This Means for Real Estate Investors
Investors will want to formulate a strategy for the next 12-24 months based on mortgage rates and borrowing costs. There is no crystal ball to predict where rates will be because it depends on so many other variables. However, according to experts interviewed by CBS News, there is a path, albeit tenuous, for rates to fall below 5% by the end of 2026.
For borrowers not keen on a wait-and-see approach, the article suggests considering shorter-term options, such as adjustable-rate mortgages, or using a mortgage broker to access wholesale pricing with an eye toward refinancing later.
The argument for gradual rate cuts for landlords
A gradual rate easing is likely a better scenario than a sudden rate slash, which could signal a homebuying stampede. It’s the same scenario that dominated much of 2025: rates easing and buying increasing in a measured way, as Reuters reported, with more expected for the remainder of the year. It means landlords might be able to lower their interest rates as rates decrease while still having a significant rental pool due to affordability challenges.
How smaller landlords should position themselves now
Investors face three challenges heading into the new year, with interest rate cuts expected but not certain:
- How to finance existing assets
- How to underwrite new deals
- How to manage rents and tenant relationships
Warsh’s indications, according to the Journal, that he wants to “support households and small-medium enterprises,” and ease up on smaller banks, suggests that lending and credit will be accessible, with short-term rates possibly drifting lower while lending criteria remain stringent.
All this means that there will be no silver bullet but instead, by staying in touch with local lenders as rates come down, investors might be able to eke out refinances and new loans that make sense for cash flow and stable acquisitions that will enable borrowers to service and pay down debt and enjoy modest equity gains and the tax advantages of owning real estate, while waiting for more sizable interest rate shifts.
Cash remains king
The primo play for those who can manage it in this market is the all-cash one. Whether that means liquidating existing assets, tapping HELOCs, or partnering with private lenders—before markedly lower interest rates cause prices to skyrocket—securing new assets without leveraging up to the gills is the prudent way to go.
Tenant retention
Retaining tenants is key, no matter the rate cycle. However, if rates do drop closer to 5%, as some people predict, some tenants might be tempted to get on the property ladder as homeowners. Landlords will want to ensure that those seeking highly leveraged loans see the benefits of retaining renters through modest rent increases, prompt and efficient maintenance responses, and flexible renewal terms, until they can save more money.
Final Thoughts
Don’t get too excited by the Warsh hype because nothing is certain. Instead, you can only plan based on what you can see directly in front of you—that means modest changes with interest rates and house prices, making affordability an issue for many tenants. However, positioning yourself ahead of the pack, should rates tumble, ensures you won’t be lost in the shuffle, and will also help safeguard your long-term investing future.
Discussion about this post