Eyes on the Economy: Interest Rates, Homes, Inflation

Fed Raises Rates, Signals More Hikes Ahead

The Federal Open Market Committee unanimously raised the fed funds target rate from 3.75% to 4.00% at its September 16 meeting, saying the move would support a timelier return of inflation to its 2% goal. The Fed’s updated projections showed that 16 of 18 officials expect at least one additional increase by the end of 2026, while four anticipate two more hikes. The median rate forecast rose to 4.1% from 3.75% in June and remained at 4.1% for 2027, although eight policymakers projected 4.4%. Fed officials slightly raised their median forecast for year-end core inflation to 3.4% from 3.3% and lifted expected gross domestic product (GDP) growth to 2.3% from 2.2%.

The Fed said uncertainty remains elevated, partly because of geopolitical developments, but emphasized that domestic spending has stayed resilient. It also reiterated that productivity growth and capital investment remain strong, while job creation has kept pace with labor-force growth and the unemployment rate has changed little overall.

US Home Builder Confidence Falls to One-Year Low

Home builder confidence fell three points to 32 in September, its lowest level since September 2025, as higher mortgage rates, labor shortages and rising construction costs weakened the housing outlook. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index showed buyer traffic remained subdued, while tight lending conditions and limited lot availability added pressure. Builders also cited higher material, fuel and land costs, alongside workforce disruptions linked to increased immigration enforcement.

Price reductions and sales incentives became more common, with 38% of builders cutting prices, up from 35% in August, although the average discount held at 6% for the sixth month. Meanwhile, 66% offered incentives, the highest share since December. The index for current sales conditions dropped four points to 35, while expectations for the next six months fell six points to 37. Buyer traffic held at 23. Regional three-month averages declined in the Midwest, Northeast and South, while the West edged higher.

Consumer Inflation Holds Steady as Producer Prices Accelerate

Consumer Price Index (CPI) inflation held steady at 3.4% in August 2026, unchanged from July and matching forecasts. Energy costs remained a major source of pressure as gasoline prices climbed 27.4% from a year earlier and fuel oil inflation accelerated to 52% from 39.1%. By contrast, shelter inflation eased to 3% from 3.2% and food inflation slowed to 2.7% from 3%.

Consumer prices rose 0.4% month over month, the largest increase in three months and in line with expectations. Gasoline gained 3.9%, accounting for more than one-third of the monthly rise. Food edged up 0.1% and shelter increased 0.3% while natural gas and electricity prices fell 1.1% and 0.2%, respectively. Prices also increased for communications, airline fares, education and used vehicles. Excluding food and energy, core CPI rose 0.3% for the month, exceeding July’s 0.2% gain and forecasts for another 0.2% increase. However, annual core inflation eased to 2.4%, its lowest level since March 2021.

Meanwhile, Producer Price Index (PPI) inflation accelerated to 5.4% year over year, slightly above forecasts. This was up from a 4.8% increase in July. Core PPI rose 4.6%, while monthly headline and core producer prices increased 0.4% and 0.2%, respectively.

Inflation Ticked Up Since Iran War Started

_{SOURCE: Trading Economics.}