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    Housing starts and permits in the US fall below expectations, impacting future rate cut prospects

    by VT Markets
    /
    Sep 17, 2025

    Impact of Rate Hikes

    The weak housing report for August shows that the rate hikes in 2023 are still affecting the economy. This should make us cautious about sectors that rely heavily on economic growth. The report indicated housing starts at 1.307 million, which is much lower than expected and brings us closer to the lows we saw after the pandemic. Now, the market is adjusting to a higher chance that the Fed will lower rates sooner, likely in the first quarter of 2026. It’s a good idea to keep an eye on options for SOFR futures to prepare for this change. However, the recent Consumer Price Index report from August 2025 shows core inflation stubbornly above 3%, putting the Fed in a tough spot.

    Potential Market Strategies

    For equity traders, this news hits homebuilders and related sectors hard. We should think about taking bearish positions on housing ETFs. The SPDR S&P Homebuilders ETF (XHB) has already dropped over 4% in the past month. This new data could push the sector down further as hopes for a quick recovery diminish. If the Fed acts too quickly, there’s a real risk that long-term bond yields might rise due to inflation concerns. This could lead to a classic curve steepening event. In this case, current 30-year mortgage rates, currently averaging 6.15% according to Freddie Mac, may not decrease significantly. We’ll be closely watching the spread between 2-year and 10-year Treasury yields for any signs of this trend. This ongoing economic weakness and the possibility of a more dovish Fed are likely to weaken the US dollar. We expect the Dollar Index (DXY) will struggle and could test its recent lows. This trend makes long positions in currency pairs like EUR/USD increasingly appealing in the weeks ahead. Create your live VT Markets account and start trading now.

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