Politics, policy, and a market trying to recalibrate after a burst of volatility were the names of the game this week. President Trump’s announcement that he intends to nominate former Fed Governor Kevin Warsh to succeed Jerome Powell as Federal Reserve Chair was the largest headline. While Warsh is a known quantity with prior Fed experience and deep ties to Wall Street, the nomination introduced renewed debate about Fed independence, especially as the Supreme Court considers a case that could redefine a president’s power to remove sitting governors. Markets largely treated the announcement as “priced in,” viewing Warsh as hawkish-leaning but institutionally constrained, and assuming continuity rather than a dramatic shift in monetary policy.
Treasuries and agency MBS rallied sharply to begin the week, pushing 5-year and 10-year yields back below their 200-day moving averages. Data that was hardly recessionary ( jobless claims remained low, productivity stayed impressively strong, and unit labor costs declined, even as the trade deficit widened and weighed on GDP expectations) helped yields to drift back up as investors reassessed the Fed outlook and digested softer auction demand, reinforcing the sense that markets are range-bound rather than trending decisively lower. Your takeaway? investors are reluctant to push yields materially higher, but remain unconvinced that a sustained rally is justified without clearer labor market weakness.
The Federal Reserve delivered exactly what markets expected: no policy change at the January FOMC meeting, with the Committee signaling comfort that rates are near neutral and showing little urgency to cut further while inflation remains above target. Two dissents in favor of an additional 25-basis-point cut underscored internal debate, but Chair Powell’s press conference emphasized patience and data dependence, particularly focusing on the unemployment rate rather than noisy monthly job gains. Markets now see virtually no chance of a near-term cut, with expectations pushed into mid-2026, reinforcing the Fed’s “higher for longer, but not higher than currently” posture.
Freddie Mac’s latest survey showed 30-year fixed rates ticking up to just over 6.1 percent, still well below year-ago levels but enough to cool refinance activity. MBA data confirmed that rate sensitivity, with mortgage applications falling 8.5 percent on the week, driven almost entirely by a sharp pullback in refis as rates edged higher, while purchase demand held up and remained meaningfully stronger than a year ago. The consensus view remains that mortgage rates are likely to stay range-bound between roughly 6 percent and 6.5 percent, supporting a steadier spring housing market but not a breakout.
Finally, FHFA Director Pulte’s confirmation that Fannie Mae and Freddie Mac will not exceed $200 billion in additional MBS purchases helped cap speculation around expanded government support, giving investors clearer boundaries for Agency MBS demand. Separately, Rocket Companies faced a new class-action lawsuit alleging improper steering between its mortgage, real estate, and title affiliates, reviving scrutiny around vertical integration and consumer choice. All in all, we leave the week with more political uncertainty, clearer policy guardrails, and investors increasingly cautious about how much growth and reflation can realistically be priced into the outlook.