Fed Decision Week: Housing, Retail, and Rate Cut Reality

Housing Market Headwinds Pushed Many Builders To The Sidelines

Housing permits have declined year-over-year. The weakness reflects more sluggish home sales than previously expected and rising construction costs. Builders report that high material prices and labor shortages continue to challenge their ability to build homes that meet budget constraints of many families. The tailwind? Mortgage rates have declined approximately 25 basis points over the past month, providing some relief to prospective buyers. This decline in mortgage rates could lower the cost of rate buy downs but isn’t likely by itself to get builders to start new projects in the near term.

Retail Sales: The Market-Moving Wild Card

Retail sales data will likely move markets significantly this week. The prevailing theory suggests rising prices from tariffs will constrain consumer spending, supporting the case for immediate Fed action. However, if retail volumes surprise to the upside, Treasury yields could jump ahead of the Fed decision.

Fed Decision: The Main Event

The labor market has been cooling while inflation has been moving higher, creating the Fed's classic dual mandate tension. Markets have overlooked inflation data somewhat, pricing in two rate cuts this year and an additional easing in 2026. This forward-looking behavior has already loosened financial conditions – the benchmark 10-year Treasury yield fell roughly 17 basis points in the past 30 days while 30-year fixed mortgage rates declined about 25 basis points. Stock markets have continued rising, further easing financial conditions well before any Fed action.