Market analysis reveals Economy·HousingA weak housing market could der rate cuts and rescue the Fed from TrumpBy Jason MaBy Jason MaWeekend EditorJason MaWeekend EditorJason Ma is the weekend editor at Fortune, where he covers, the economy, finance, and housing.
SEE FULL BIO Federal Reserve Chair Jerome Powell talks to guests as he arrives to speak at the Thomas Laubach Re Conference held by the Federal Reserve Board of Governors on May 15 in Washington, DC (an important development).
Meanwhile, Andrew Harnik—Getty ImagesPresident Donald Trump’s tariffs are expected to heat up prices later this year, but the housing market is looking weak enough that it may cool overall inflation.
That would the way for the Federal Reserve to lower interest rates, which Trump has been pressuring Chairman Jerome Powell to do for months.
Conversely, The Federal Reserve is keeping a close eye on President Donald Trump’s tariffs and how they will affect inflation, but the housing market may the way for lower rates—rescuing central bankers from the White House’s relentless pressure for more easing.
Moreover, The housing market has largely been frozen since the Fed launched an aggressive rate-hiking campaign in 2022, as mortgage rates jumped along with Treasury yields.
Last year saw a few rate cuts, but spective buyers still face high borrowing costs, and the strains are starting to show.
Now, there are growing alarms that prices, sales and building are all headed for a slump.
Housing accounts for a third of the goods and services measured in the consumer price index, meaning weakness in shelter costs can slow inflation readings substantially, given the current landscape.
Conversely, That could offset the inflationary effects of Trump’s expansive tariffs (which is quite significant).
While they have yet to trigger a big spike in prices, there are signs that import-sensitive, such as autos and appliances, are already feeling the impact of higher duties, given current economic conditions.
In contrast, In a note last week, Comerica Bank chief economist Bill Adams said the cooling housing market is helping bring down core service price inflation, in a trend disconnected from tariffs (this bears monitoring).
On the other hand, “Toward the end of the year, the housing market may become a bigger deal for inflation than tariffs,” he predicted.
“Housing weakened in the second quarter, with sluggish construction and sales and falling price indexes. If house prices and rents continue to run cool they will further slow core inflation.
” Cooler inflation is more ly than labor market data to spur Fed rate cuts, considering recent developments.
Adams noted that even if hiring becomes sluggish, the unemployment rate will bably hold steady.
That’s because Trump’s immigration crackdown is squeezing the labor supply, so demand for workers would have to tumble for the jobless rate to jump, he explained.
In contrast, And with Trump’s tax cuts going into effect later, es are unly to slash hiring.
On the other hand, “A more ly outcome for the economy is that the weakening housing market cools core inflation enough that the Fed feels comfortable incrementally reducing rates late this year,” Adams wrote, adding that Comerica expects a quarter-point cut from the Fed at the December meeting.
December won’t be soon enough for Trump, but others on Wall Street don’t see any cuts this year. At the same time, Trump is mindful of the Fed’s impact on housing.
In a Truth Social post on Friday, he said Fed officials are “choking out the housing market with their high rate, making it difficult for people, especially the young, to buy a house, considering recent developments.
” Chairman Jerome Powell and other policymakers have held off on lowering rates, pointing to the potential for tariffs to stoke inflation further later this year.
Meanwhile, Trump has been haranguing and insulting Powell for months to cut, even suggesting that he could oust the man he appointed in his first term to lead the Fed.
Trump said last week it’s “highly unly” that he would fire Powell, but others in the administration are pressuring the Fed in other ways.
The White House has used cost overruns on the Fed’s headquarters renovation to accuse Powell of mismanagement (quite telling).
On the other hand, In contrast, And on Monday, Treasury Secretary Scott Bessent told CNBC that “the entire Federal Reserve institution” should be examined (remarkable data).
The connection between lower rates and housing was not lost on Jim Reid, global head of macro re and thematic strategy at Deutsche Bank.
Moreover, Moreover, “This may explain the persistent pressure from Mr.
Furthermore, Trump on the Fed to cut rates—perhaps he sees this as the most effective way to support the housing market,” he wrote in a note on Monday (noteworthy indeed).
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