This week brings another opportunity for Fed Chair Jerome Powell to defend the central bank’s cautious stance as he addresses markets that increasingly question whether patience remains the right strategy. Recent data supports the wait-and-see approach: goods inflation has edged higher, and the labor market shows few signs of further deterioration. From this perspective, the cost of waiting appears manageable.
Yet cracks are emerging within the Federal Open Market Committee. Governor Christopher Waller has articulated a compelling alternative view that deserves serious attention. He argues that incoming tariffs will function more like a tax –hitting wholesalers, retailers, and consumers while potentially weakening aggregate demand. Any price uptick could be short-lived. Under this scenario, the Fed risks allowing unemployment to rise unnecessarily if it waits too long to act.
The employment data supports Waller’s concerns. Private sector job growth has slowed dramatically, with state and local government hiring accounting for more than half of last month’s gains – likely a temporary boost rather than sustainable momentum. This pattern suggests underlying weakness in the labor market.
At the same time, Congress deficit-financed tax cuts are expected to provide near-term economic stimulus, potentially offsetting some of the drag on aggregate demand. But it is also important to recognize that the latest tax bill has long-term costs – higher debt burdens that could prove more damaging than any short-term benefit.
Housing Market: Stuck In Neutral
Housing data takes center stage this week with both existing and new home sales reports. The sector continues its stubborn dance along multi-decade lows, offering little evidence of a meaningful recovery despite some encouraging signs.
May’s existing home sales managed a modest 0.8% monthly increase, but remained 0.7% below year-ago levels – hardly the stuff of recovery narratives. June’s data, reflecting contracts signed in late April and May, faces uncertain prospects. While newly pending listings showed slight improvement in early May, not all contracts translate to completed sales.
The market presents a paradox of opportunity within broader weakness. Inventory has expanded compared to last year, creating the first meaningful competition for builders in years and putting downward pressure on prices across all housing types. This dynamic is slowly improving affordability and shifting negotiating power back to buyers for the first time since the pandemic.
Zillow data reveals the extent of this shift: 27% of listings experienced price cuts in June – the highest June figure since at least 2018. Markets in Florida, Texas, Georgia, and Tennessee are seeing particularly aggressive price adjustments, with buyers wielding more leverage than they’ve enjoyed in years.
Yet structural headwinds remain formidable. Unlike last year when mortgage rates began falling ahead of aggressive Fed cuts, borrowing costs are expected to stay elevated relative to recent history. As the traditional slow season approaches, this rate environment creates additional drag on transaction volumes.
Without meaningful price corrections, home sales face an uphill battle to exceed last year’s already-depressed levels. While modest improvement remains possible, expectations for 2025 should remain tempered. The housing market’s recovery will likely prove gradual and uneven, testing the patience of buyers, sellers and policymakers alike.
The week’s data will provide crucial insights into whether current trends represent stabilization or continued deterioration in this critical sector of the economy.
