Fed Holds As Housing Disinflation Strengthens

What Is Happening Today

Markets are slightly weaker this morning as investors digest yesterday’s Fed decision and renewed political uncertainty around a possible government shutdown. The Fed concluded its 2 day meeting with no rate change, which was widely expected, and market reaction has been muted. Attention has shifted toward inflation progress inside housing, productivity trends, and what real time data is signaling beneath the surface of headline labor reports.

Fed Decision Recap

The Fed left rates unchanged at 3.625%
Two members dissented in favor of a 25 bp cut
Officials upgraded growth expectations and downplayed labor market risks
Powell emphasized inflation above 2%, citing services and tariffs

While the Fed stayed cautious in its messaging, Powell acknowledged that excluding housing and tariff effects, inflation is much closer to target.

Housing Inflation Continues to Cool

January rents fell 0.2% month over month
Rents are down 1.4% year over year
Vacancy rates rose to 7.3%, a record high
Time to lease is the longest since tracking began

Real time rent data continues to point toward ongoing shelter disinflation, which should filter into CPI and PCE readings in the months ahead.

Productivity Is Doing the Heavy Lifting

Q3 productivity rose 4.9%, matching estimates
Q2 productivity was previously revised higher to 4.1%
Unit labor costs fell 1.9% in Q3
Lower labor costs are deflationary

Strong productivity growth is helping offset wage pressures and supports a more favorable inflation outlook without requiring job losses.

Jobless Claims Tell an Incomplete Story

Initial claims fell to 209,000
Continuing claims dropped to 1.827M
Claims trends may reflect benefit expirations, not hiring
Gig work continues to distort labor data

While claims remain low on paper, layoffs and income stress are likely understated due to shifts in how workers earn and qualify for benefits.

Final Takeaway

Markets softened modestly after the Fed meeting, but the bigger story remains inflation progress beneath the surface. Housing costs continue to cool, productivity is improving, and unit labor costs are falling, all of which support a lower inflation path over time.

Even though rates are choppy day to day, the fundamental backdrop still points toward easing financial conditions as 2026 approaches. Volatility may persist in the short term, but the longer term direction remains constructive if disinflation trends continue.