Consumer Spending Slows 

The Fed meeting on Wednesday revealed no significant surprises. Consumer spending slowed more than expected, but its impact was minor. Mortgage rates ended the week with little change. 

While the headline number for the latest home building data was disappointing, the details of the report removed some of the sting. Overall housing starts in May dropped 10% from April to the lowest level in five years. However, the unexpected weakness was entirely due to volatile multi-family units, which plunged 30%, while single-family starts rose slightly. Single-family building permits, a leading indicator of future construction, dropped 3% from April. A separate survey of home builder sentiment on housing market conditions from the NAHB unexpectedly declined to the lowest level since 2022. Builders reported that uncertainty about tariffs and rising costs made it difficult to price their homes.

As expected, the Fed made no change to the federal funds rate on Wednesday, leaving it at a range between 4.25% to 4.50% where it has been since December. The meeting statement was similar to the prior one, emphasizing the high level of uncertainty about the economic outlook due to changes in government policies. The statement also elaborated on the challenge facing the Fed, since higher tariffs could lead to increasing unemployment and higher inflation. If both of these outcomes take place, lower rates would be the proper course to boost the labor market, but higher rates would be called for to fight rising prices. The latest forecasts from officials raised the outlook for inflation this year and lowered it for economic growth. These closely watched projections also called for two 25 basis point rate cuts later this year, the same as three months ago. However, officials anticipate just one additional reduction in 2026 and one in 2027, down from two per year in the prior set of forecasts. 

Investors will continue to look for additional information about tariff policies and monitor the situation in the Middle East. For economic reports, Existing Home Sales will be released on Monday and New Home Sales on Wednesday. Consumer Confidence will come out on Tuesday. Personal Income and the PCE price index, the inflation indicator favored by the Fed, will be released on Friday.