Waller passed his Senate committee vote today. Trump called him the greatest Fed chair in history. I won't evaluate that judgment. I'll just state one fact: the last time the Fed cut rates by 100 basis points, your mortgage payment went up.
On May 1, Powell held his final press conference as Fed Chair. Rates stayed at 3.5%-3.75%. But what really mattered: four FOMC members voted against the decision — the biggest internal dissent since 1992. They weren't pushing for cuts; they wanted to completely close the door on future rate reductions.
Powell said at his final presser: we're simultaneously experiencing at least four supply shocks — the pandemic, the Ukraine war, tariffs, and the Iran conflict. Each one can simultaneously push up inflation and unemployment. The central bank genuinely doesn't know what to do.
Chapter 1: Rate Cuts and Mortgage Rates Are Two Different Things
Most people's mental model: Fed cuts rates → mortgage rates fall → monthly payments drop → time to buy. This logic has a fatal flaw.
In September 2024, the Fed began cutting rates. The day before the first cut, the 30-year fixed rate was 6.08%. After 100 basis points of cuts, it rose to 7.04%. The Fed cut 100 bps and your monthly payment went up.
Why? The Fed controls the federal funds rate — the short-term interbank lending rate. Your 30-year mortgage tracks the 10-year Treasury yield. These two don't move together.
J.P. Morgan studied seven rate-cutting cycles since 1980. In almost every cycle, the 10-year yield fell within 100 days of rate cuts. 2024 was the only exception — the Fed cut but long-term rates didn't follow, because $36 trillion in outstanding debt and tariff-driven inflation kept bond markets skeptical.
The number to watch is not the Fed's rate decision — it's the 10-year Treasury yield. Today it hit 4.41%. It needs to fall below 4% before mortgage markets meaningfully loosen.
Chapter 2: What Does Waller Actually Want?
Many say Waller is Trump's pick, Trump wants lower rates, so Waller will immediately cut. Here's the key detail most coverage missed.
Waller said in his Senate hearing: 'If the Fed had maintained a smaller balance sheet, rates could have been lower, inflation better, the economy stronger.' What does this mean?
The Fed currently holds $6.6 trillion in assets, including $2 trillion directly linked to mortgages. Waller wants to sell these back into the market. When the Fed stops being a mega-buyer of mortgage-backed securities and starts selling, supply increases, prices fall, yields rise, and your mortgage rate goes up.
So Waller's approach: cut short-term rates while selling long-end assets. One foot on the gas, one foot on the brake. As RBC BlueBay's Chief Investment Officer put it: 'This does nothing to reduce mortgage rates, which is exactly what Trump wants most.'
Chapter 3: What This Means for Seattle Buyers and Sellers
Seattle's median home price is around $850K. At 6.6% interest rates, the income needed to buy this home is $180K-$210K. Seattle's household median income is $130K — meaning the median-income family spends nearly 47% of income on housing. The warning threshold is 30%.
But inventory is rising. King County active listings up 71% YoY, sales volume up only 0.7%. Homes taking 28-42 days to sell. The balance of power is shifting toward buyers.
Morgan Stanley's threshold: 30-year mortgages need to fall to 5.5% to trigger sustainable demand. From today's 6.6% to 5.5% is 110 basis points. Twenty-six Wall Street economists forecast an average of 14 basis points in cuts this year. Do the math.
Two meaningful benchmarks for buyers:
- Watch the 10-year Treasury yield, not the Fed's rate decisions. When it falls below 4%, that's the real window.
- With inventory up 71%, negotiating leverage is the best in two years. If your need is genuine and your timeline is set, negotiate on price rather than waiting on rates.
