This Week’s Inflation and Sentiment Data May Clarify the Fed’s Path

This Week In A Nutshell: With the Strait of Hormuz still closed and fresh off a hot jobs report last week, rates are at risk of climbing further this week if Wednesday’s inflation data comes in above expectations.

Upcoming Attractions

The biggest news this week, aside from any developments in peace negotiations with Iran, is Wednesday’s Consumer Price Index (CPI) report followed immediately by the Producer Price Index (PPI) on Thursday. Combined, the two will give us a very good idea how Personal Consumption Expenditures or PCE, the Fed’s gauge of inflation, will come in later this month. They will be the first look at inflation for May, two months after the start of the Iran war. A higher than expected reading on core inflation would lead Fed officials to discuss whether to hike at next week’s meeting. An as-expected reading would allow them to keep the hike as a more distant possibility while keeping rates steady to wait for new data.

Friday also brings consumer sentiment data. Consumer sentiment has hit an all time low with consumers worried about the labor market and prices at the same time. If consumers cut back on spending as a result, growth and the labor market could weaken into the end of the year, allowing the Fed to hold back hikes.

Last Week’s Highlights

The main development last week was Friday’s hot jobs report, which sent expectations of a Fed rate hike and mortgage rates higher. The JOLTs report also surprised to the upside though the guts were less promising than the headline. All together the labor market data made a more definitive case that the jobs market has improved meaningfully since the fall. And therefore makes those three cuts from the Fed last Q4 look less necessary. All to say, the Fed could potentially discuss a hike now as taking back those “insurance cuts” from the Fed.

Diving a Little Deeper

• Arguments for hikes: Inflation has been above target for 5 years. Even if the Strait of Hormuz opened tomorrow, oil prices would potentially remain elevated through the end of 2026 and some of the inflation will spill over into the core inflation that the Fed cares about. The AI boom adds more fuel to the fire in the near term even if AI is ultimately deflationary. And the labor market has rebounded so it is unlikely to force them to cut.
• Arguments for expecting cuts: Energy price spikes do not matter for the Fed because they care about underlying inflation. The war is ultimately stagflationary so it will also weaken the labor market. We just haven’t seen the effects yet. And the labor market is actually weaker than the headline numbers suggest because methodological changes have increased volatility in the numbers.
• One possibility is that the Fed just holds. Former chair Powell liked to say that when you’re driving in the fog, you slow down. The monetary policy equivalent of that is to hold rates steady. What’s the argument against? Well simply that the Fed has very rarely held rates steady for more than a year and the last cut was December 2025. Circumstances almost always compel them to take action in one direction or another.

Redfin Housing Market Reports

• Rising Rates Stall Housing Market Momentum Just After Closed Home Sales Hit Highest Level Since 2022
  • Closed home sales jumped in May, reflecting April’s dipping mortgage rates and a strong labor market.
  • But pending home sales were flat, a real-time reflection of May’s rising mortgage rates and economic uncertainty, which dampened buyers’ appetites.
  • The Bay Area’s AI-fueled hot housing market contributed to the surge in closed sales, with double-digit sales upticks in San Jose and San Francisco. So did a surge in West Palm Beach, a market that’s typically driven by affluent buyers.
  • New listings rose to their highest level since 2022 as sellers tried to capture demand.
  • Home prices increased 2% year over year.
• Sellers Are Pulling Their Homes Off the Market at Near-Record Rates as Buyers Reject High Prices
  • More sellers are delisting in today’s buyer’s market as their homes sit on the market longer than they’d like and/or they’re unable to fetch the price they want.
  • Some sellers who delisted their homes in the last year are relisting them: 2.5% of homes are relistings that were previously pulled off the market, the highest share since 2020.
  • Delistings are most common in strong buyer’s markets like Atlanta and Los Angeles.
  • Relistings are most prevalent in the Bay Area, where many sellers are trying to take advantage of the hot local market.
  • Redfin Early Access, which allows homeowners to test the market privately to gather pricing feedback, may help sell homes the first time they’re listed.
• Typical Homebuyer’s Down Payment Falls to $64,000 As Americans Hold Onto Cash
  • The typical U.S. homebuyer’s down payment fell to $64,000 in March, down 1.5% year over year.
  • In percentage terms, the typical down payment was 15%, down from 16.1% last year.
  • Down payment percentages were highest in three California metros: San Jose, San Francisco, and Anaheim (25% each).
  • They were lowest in Virginia Beach (2%) and Detroit (5%), which are both relatively affordable markets.
  • Median down payment percentages fell most in Fort Lauderdale, Las Vegas and Atlanta. It rose most in Tampa, Denver and Miami.