Tariffs imposed by President Trump are anticipated to increase prices, yet a sluggish housing market could cool inflation overall. This dynamic may allow the Federal Reserve to reduce interest rates, which President Trump has advocated for. Since the Fed's rate hikes began in 2022, the housing market has been stalled due to high mortgage rates and Treasury yields. With signs of declining home prices, sales, and construction, the housing market's contraction may contribute to a decrease in core inflation, counterbalancing tariff-induced price hikes.
"Toward the end of the year, the housing market may become a bigger deal for inflation than tariffs. Housing weakened in the second quarter, with sluggish construction and sales and falling price indexes."
"Housing accounts for about a third of the goods and services measured in the consumer price index, meaning weakness in shelter costs can slow inflation readings substantially."
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