This Week In A Nutshell: Rates are likely to move more on headlines out of Iran than on economic data. If peace talks show real progress, rates could come down, but if the Strait of Hormuz remains closed, markets will keep pricing in Fed rate hikes.
Upcoming Attractions
This is a light week for market-moving economic data. The main scheduled items are the FOMC minutes on Wednesday, the Philadelphia Fed manufacturing index and housing starts on Thursday, and final University of Michigan consumer sentiment on Friday. We’ll also get pending home sales on Tuesday. The FOMC minutes may give more detail on how close the Fed is to dropping its easing bias and shifting to more neutral language. Fed speakers will also be out this week, including Waller, Barr, Paulson and Barkin. But all of that is likely to take a back seat to Iran. Markets are mostly watching whether there is progress toward reopening the Strait of Hormuz and bringing energy prices back down.
Last Week’s Highlights
Last week’s data had the same basic message as the prior few weeks: Growth is holding up better than expected, but inflation may still be too high. April CPI was close to expectations, with an increase in headline inflation driven by energy and core inflation boosted by a technicality in shelter. PPI prices were also hotter though the categories that the Fed cares about were less so. Activity data were solid. Retail sales rose 0.5% in April, industrial production rose 0.7%, manufacturing production rose 0.6%, and the first May regional manufacturing survey was strong. That led to higher expectations for Q2 GDP.
Fed officials also sounded more worried about inflation. Goolsbee, Collins and Schmid all emphasized inflation risks, while Williams said he did not see a reason to either raise or lower rates right now. Ten-year Treasury yields rose sharply as investors increasingly priced the risk that the Fed’s next move could eventually be a hike rather than a cut.
Diving a Little Deeper
The tricky part of the current environment is that the economy looks resilient right now, but possibly for temporary reasons. Tax cuts appear to be cushioning consumers from higher gas prices in the short term, and some business activity may have been pulled forward ahead of expected price increases and supply chain issues. That helps explain why growth is holding up in the face of higher energy prices. But if oil prices stay high, the pressure should eventually show up more clearly in growth. Higher gas prices reduce real income, push inflation expectations higher, and make consumers more cautious.
For housing, the story is mixed. On one hand, the labor market looks better, pending sales have improved, and the spring market may finally be showing some life. On the other hand, mortgage rates remain volatile and spiked again on Friday because inflation fears are dominating growth fears. That calls into question how long the current boost in housing may last. It all depends on when the US and Iran can come to an agreement on opening the Strait of Hormuz.
Redfin Housing Market Reports
America’s Housing Market Favors Buyers—But Their Advantage Is Finally Starting to Shrink
- There were an estimated 47% more sellers than buyers in April, down from 48% the month before and a peak of 49% at the end of last year. The gap is shrinking as buyers start to come off of the sidelines amid a stabilizing job market.
Home Prices Posted the Biggest Increase in Over a Year in April
- The median U.S. home sale price rose 2.4% year over year—the largest gain since March 2025.
- Pending home sales climbed to the highest level since 2023 as the labor market stabilized.
- Sellers came off the sidelines, too, with active listings hitting the highest level since 2020.
