Kevin Warsh is the 4^th US Fed Chairman we follow since our inception back in 2014, after Ben Bernanke, Janet Yellen and a two-term Jerome Powell.

­In a way that tells you how long we’ve been in this mortgage business advising thousands of clients through the many interest cycle peaks and troughs and the collective experience of this team.  Just for recaps, we’ve gone through the oil price spike (2014-2015), Fed’s historic first rate hike in decades (2016-2018), Covid crash (2020-2021), fastest tightening cycle on record (2022-2023), and the most recent unwinding of interest rate (2025), etc.  Just what is to come next?

As we reminisce over events in the last decade, one thing is for sure – don’t be too certain yet of which way interest rate will swing in 2027.  Remember it wasn’t too long ago that many analysts, economists and politicians touted that “rates will stay higher for longer”?  Soon after, Trump got elected for a second term by November of 2024 and everything went the other direction.

More recently, everyone started clamouring after fixed rates on fear of inflation when the middle east war started and drags out, only to see fixed rates softening again in recent weeks with a potential resolution in sight. Guess what? The ones paying the lowest mortgage rates throughout this time were those who opted for floating rates since late last year, averaging 1.30% to 1.40% all the way going into 2027 if SORA continues to drift sideways, or perhaps even lower?

Coming back to the Fed, a hawkish-sounding Fed statement last week after Kevin Warsh’s first FOMC in Jun took some by surprise.  Even though many now believe that inflation fight takes priority for Fed over the labour market which remains in decent shape.  Indeed, Fed has pared own its statement to remove the easing bias and 9 out of the 18 Fed officials submitted dot plots (Kevin Warsh abstained) which suggest one rate hike of 25 basis points before the end of 2026!  With that, market is starting to price in possibility of rate hikes as early as October, instead of cuts.

Really? Perhaps we need to see where oil prices are heading over the next few months.  Still, I’m not so sure yet as we have learnt how things can turn on a dime.  This is the highest value add you can derive when you work with an experienced team here – we show you how best to approach that decision when it comes to mortgages.  First, you got to be operating in the right paradigm.

Most people also tend to operate from a paradigm of picking the lowest number.  That’s understandable after one makes an attempt to collate all the latest mortgage rates and packages from the market.  But do you know that could be the wrong paradigm to operate on?  If you do that, you’re making what should be a “dynamic decision” based on static information collated at one point in time! Be prepared for surprises.

As we reminisce over events in the last decade, one thing is for sure – don’t be too certain yet of which way interest rate will swing in 2027.

Beyond what came out from Fed statement and its press conference last week, I think there are two things which have bigger implications for your mortgage going forward: an evolving Fed and an evolving landscape (labour market).

An evolving Fed

The latest June FOMC was very much uneventful as far as we are concerned.  Fed held rates steady for the 4^th time this year and in the range of 3.50-3.75%, in line with market expectation.  You can’t really expect much from a newly-installed Fed Chairman who needs to be given time to do his work and build consensus with his committee.  Building consensus is exactly what he did, if you ask me, as he started off sounding hawkish which is what both the market and the committee like to hear!

What’s more interesting for us is the next few meetings where we will be waiting to hear some big changes and announcements especially during the upcoming annual Jackson Hole symposium.  Already, Kevin Warsh has made it known that he disliked the idea of giving forward guidance, so dot plots may be abolished.  Furthermore, he has embarked on an ambitious overhaul in the way Fed operates with the setting up of as many as five task forces to study and review Fed’s framework for:

• communications
• balance sheet policy
• data sources
• productivity and jobs
• inflation

These task forces will comprise of both internal Fed staffers as well as outside experts selected by Warsh.  Depending on who he appoints to these task forces, it will lend credence to his cause of changing how the Fed operates.  The reports from the various task forces will be submitted before the end of the year, adding much haste to the process.

Of the most interest to us is how Fed might start to use more of its balance sheet as part of its monetary tool, as well as how Fed is potentially going to redefine how it looks at and measure inflation, which may signal a move away from using purely PCE index?

When Fed moves away from giving forward guidance, expect more volatility on Fed days going forward when the market can no longer expect how Fed interprets incoming data, and which way it will vote be it a rate hike or a cut.  It makes for more interesting Fed watch than what we’ve been used to in the past decade.

Until we learn of all the findings from the five task forces set up, to which you can definitely expect some significant change, probably by December after the midterms, there will be huge implications on Fed policy and where interest is heading in 2027.  Some call it a new era of monetary policy to be expected under Warsh.  For one, depending on how Fed reconstitutes the measure for inflation, it could jolly well be running much nearer Fed’s target of 2% and way below the current levels of over 4% for CPI and over 3% for PCE.

An evolving landscape

The impact of generative AI, agentic AI, robotics and humanoids on jobs are far reaching and undisputed by now.  Even coders or software engineers can be displaced which is something unthinkable earlier.  I believe we are only witnessing the initial phases of this massive disruption taking place and it is to Kevin Warsh’s credit and foresight to commission a study on AI’s impact on the labour market through a dedicated task force.

So far in the past few years, the labour market in the U.S. has held up remarkably well and resilient even in the face of one of the highest inflation cycle in history.  Much of it has been credited to the massive productivity gains made from technological advances especially AI.  The market is starting to believe the notion that we can have growth without inflation. How this trend can continue in a way that’s sustainable in the long run would have huge implication for the direction of interest rate.

Will the Fed need to lower rate as the pace of AI displacements outstrip that of new jobs creation leading to higher structural unemployment in the economy?  Or will Fed need to hike rates to contain inflationary pressure as productivity gains lead to rising wages and wealth, not to mention the higher cost base of business in a more fractured world?  The answer is never binary as there are many other forces intertwined including the retiring from the work force of the biggest cohort of baby boomers now in their 60s-80s, likely the biggest generational wealth transfer, etc.

In fact, with financial markets today going parabolic over AI & space aspirations with astronomical valuations, yet at the same time contending with what many deemed as unsustainable debt situation, it will hardly be surprising if we see Warsh having to deal with the next crisis sooner than expected.  Meanwhile, he has his work cut out for him in dealing with the biggest energy crisis of our times which we may have yet to see the full impact.

To conclude, it could indeed be a new era of monetary policy as we see how an evolving Fed manoeuvres in an evolving landscape over the next 10 years.  It’s still hard anyone to declare that it will be an era where interest rate will stay higher or lower for longer?  If I have to place a bet, it might be the latter.

I could be wrong of course.  Remember we started 2026 expecting as many as three rate cuts, before US & Israel attacked Iran on 28 February.  So, whatever you think is going to happen to interest rate in 2027, just don’t be too sure yet.

Will the Fed need to lower rate as the pace of AI displacements outstrip that of new jobs creation leading to higher structural unemployment in the economy?  Or will Fed need to hike rates to contain inflationary pressure as productivity gains lead to rising wages and wealth, not to mention the higher cost base of business in a more fractured world?  

At MortgageWise, we help clients navigate through the myriad of mortgage rates quick and fuss-free and get you the best home loan Singapore! Be it for residential or commercial property loan, work with us today!

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