6/30/25 REcap: Rate DROP as Trump drops Fed Shadow President Bomb

Trump is tired of waiting for Powell to act

In an unprecedented move, President Trump is laying the groundwork to install a “shadow” Federal Reserve chair—essentially pre-announcing his preferred successor to Jerome Powell nearly a year before Powell’s term ends. The strategy, floated by Treasury Secretary Scott Bessent, is designed to influence market expectations and apply pressure on the current Fed to cut rates sooner. Trump has repeatedly criticized Powell’s reluctance to act, calling him “very stupid” and blaming him for keeping borrowing costs high because Powell suffers from "Trump Derangement Syndrome". He can't fire Powell and Powell won't resign, so this might be Trump's only hope at minimizing Powell.

Several names are reportedly on Trump’s shortlist, including Kevin Warsh, Kevin Hassett, and Christopher Waller—figures seen as more dovish and politically aligned with Trump's economic agenda. If you remember, Christopher Waller was the ONLY voting member of the FOMC to come out and say the Fed should cut rates in July after the June Fed Meeting.

While Trump’s goal is clear—lower interest rates  to boost the economy—the move has economists and former Fed officials concerned. A “shadow” chair could create conflicting signals to bond traders and global markets, undermining the Fed’s independence and credibility. Some fear it may even backfire, pushing rates higher if markets perceive instability or increased political interference. Still, Trump’s allies are betting that a media-savvy shadow chair could help drive down yields and mortgage rates, especially as labor data softens. Morgan Stanley now predicts up to 7 rate cuts in 2026, and other traders are already pricing in more cuts this year (more on that below). 

Pending Home Sales Rebound

Pending home sales climbed 1.8% in May - a welcome signal that buyers are starting to reengage after April’s steep drop and makes sense given the modest dip in mortgage rates over the last month. All four U.S. regions posted month-over-month gains. Pending home sales in the Austin-Round Rock-San Marcos MSA are up more than 16% year-over-year! As we've seen repeatedly, when rates fall, buyers move. And May’s uptick could be the first sign that market momentum is building again.

 The past year has made it clear: when rates go up, pending sales retreat—and when they go down, buyers come back. If current economic pressures continue nudging rates lower, don’t be surprised to see a stronger summer and fall for home sales. For buyers waiting on the sidelines, this may be a good time to jump before competition heats up again if Trump's shadow Fed plan does work out.

Shrinking GDP = Growing Opportunity

The U.S. economy shrank by 0.5% in Q1 2025—its first contraction in 3 years—largely driven by front-loaded imports to avoid tariffs and a sharp pullback in consumer spending. Tariffs and global uncertainty rattled confidence and nudged households into pause mode, with dining and recreation spending falling notably. But as the data shows, the downturn was temporary because of tariffs concerns, not systemic.  A weaker economy, whether temporary or not, takes the pressure off inflation concerns and gives the Fed room to cut interest rates. 

PCE Ticks Higher as Consumer Spending Falls

May’s PCE inflation report showed mixed signals but offered potential upside for homebuyers. The Fed’s preferred gauge, the core PCE index, ticked up to 2.7%—slightly hotter than expected—but overall inflation remained tame at 2.3% annually. More importantly, consumer spending fell and incomes declined, signs the economy may be cooling just enough to justify rate cuts later this year. While markets remain cautious, several Fed officials are starting to float the idea of easing. If rate relief materializes, it could be a tailwind for housing—especially as buyers respond quickly to even small improvements in affordability

Rate Cut Predictions

Michelle Bowman recently joined Waller in being open to a rate cut. The more Fed members supporting a rate cut, the better for homebuyers. She said “All considered, ongoing progress on trade and tariff negotiations has led to an economic environment that is now demonstrably less risky.... As we think about the path forward, it is time to consider adjusting the policy rate.” September 17th is still the firm target date, but a July cut is becoming more probable - going from practically 0% to a 21% chance in just the last week. 

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