The housing market has largely been frozen since the Fed launched an aggressive rate-hiking campaign in 2022, as mortgage rates jumped along with Treasury yields.

Last year saw a few rate cuts, but prospective homebuyers still face high borrowing costs, and the strains are starting to show. Now, there are growing alarms that home prices, sales and homebuilding are all headed for a slump.

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.

That could offset the inflationary effects of Trump’s expansive tariffs. While they have yet to trigger a big spike in prices, there are signs that import-sensitive categories, such as autos and appliances, are already feeling the impact of higher duties.

In a note last week, Comerica Bank chief economist Bill Adams said the cooling housing market is helping bring down core service price inflation, in a trend disconnected from tariffs.

“Toward the end of the year, the housing market may become a bigger deal for inflation than tariffs,” he predicted. “Housing weakened in the second quarter, with sluggish construction and sales and falling price indexes. If house prices and rents continue to run cool they will further slow core inflation.”

Cooler inflation is more likely than labor market data to spur Fed rate cuts. Adams noted that even if hiring becomes sluggish, the unemployment rate will probably hold steady.

That’s because Trump’s immigration crackdown is squeezing the labor supply, so demand for workers would have to tumble for the jobless rate to jump, he explained. And with Trump’s tax cuts going into effect later, businesses are unlikely to slash hiring.

“A more likely outcome for the economy is that the weakening housing market cools core inflation enough that the Fed feels comfortable incrementally reducing rates late this year,” Adams wrote, adding that Comerica expects a quarter-point cut from the Fed at the December meeting.

December won’t be soon enough for Trump, but others on Wall Street don’t see any cuts this year. At the same time, Trump is mindful of the Fed’s impact on housing. In a Truth Social post on Friday, he said Fed officials are “choking out the housing market with their high rate, making it difficult for people, especially the young, to buy a house.”

Chairman Jerome Powell and other policymakers have held off on lowering rates, pointing to the potential for tariffs to stoke inflation further later this year.

Meanwhile, Trump has been haranguing and insulting Powell for months to cut, even suggesting that he could oust the man he appointed in his first term to lead the Fed.

Trump said last week it’s “highly unlikely” that he would fire Powell, but others in the administration are pressuring the Fed in other ways. The White House has used cost overruns on the Fed’s headquarters renovation to accuse Powell of mismanagement. And on Monday, Treasury Secretary Scott Bessent told CNBC that “the entire Federal Reserve institution” should be examined.

The connection between lower rates and housing was not lost on Jim Reid, global head of macro research and thematic strategy at Deutsche Bank.

“This may explain the persistent pressure from Mr. Trump on the Fed to cut rates—perhaps he sees this as the most effective way to support the housing market,” he wrote in a note on Monday.