If Kevin Warsh wanted a quiet first day on the job, the data had other plans. The morning before the new Fed chair’s inaugural rate decision, the Census Bureau dropped a housing report that landed like a sledgehammer: starts collapsed 15.4% in May to 1.177 million — a six-year low and one of the biggest misses against expectations in recent memory. Add a blistering import-price print and the shadow of a still-hot inflation backdrop, and Warsh inherited about as complicated a picture as any new Fed chair could draw.
The housing numbers, in one word: brutal
Economists had penciled in a modest 0.7% dip to 1.413 million. Instead, they got a 15.4% nosedive that dragged the seasonally adjusted annual rate to 1.177 million — the lowest since the pandemic lockdowns of May 2020, per Census Bureau data released Tuesday. Single-family starts fell a comparatively tame 1.9% to 882,000 units, an eight-month low. The real wreckage was in the volatile multifamily category, which plunged 41.6%. But you don’t get to ignore the headline when the miss is this size.
Behind the numbers: mortgage rates that have climbed more than 50 basis points since the U.S.-backed Iran conflict escalated in late February, building-materials costs inflated by import tariffs, and builder confidence that slid again in June’s NAHB survey. Permits — a cleaner forward signal than starts — fell 0.7% to 1.413 million, with single-family permits eking out a 0.6% gain. That tiny green shoot aside, the residential investment component of GDP has now contracted for five straight quarters.
“There is little indication that U.S. home building will break to the upside anytime soon,” said Sal Guatieri, senior economist at BMO Capital Markets, citing high mortgage rates, overbuilding in the South, elevated new-home inventories, and depressed builder activity.
Import prices: another inflation headache
If weak housing suggests the economy is cooling, Tuesday’s import-price data suggested the opposite for inflation. Import prices surged 1.9% in May, nearly double the 1.0% consensus and pushing the year-over-year gain to 6.7% — the steepest since August 2022 (BLS). Fuel imports rose 12.5% on the month, a direct artifact of the Strait of Hormuz disruptions that preceded Sunday’s peace deal. But the core was hot too: import prices ex-food and energy rose 1.0% month-over-month and 4.2% year-over-year, with capital goods up 1.3% — partly reflecting AI-driven demand for semiconductors and computing equipment.
Export prices didn’t offer much relief either, climbing 1.3% in May after a revised 3.5% surge in April. Taken together, the trade-price data suggests pipeline inflation pressures remain firmly intact, even as oil markets breathe easier post-peace deal.
The Warsh Fed: hold today, pivot tomorrow?
The FOMC is universally expected to hold rates at 3.50%–3.75% when the statement drops at 2 p.m. ET. CME FedWatch shows a literal 0% probability of a move. But Warsh’s first meeting is about much more than the rate decision. The new chair is expected to remove the easing bias that three members dissented against in April — a sentence suggesting the committee was actively looking for opportunities to cut. Dropping it would unify the committee and signal Warsh’s intention to run a tighter, less dovish ship.
The dot plot — the Fed’s Summary of Economic Projections — will get extra scrutiny. Warsh has long criticized forward guidance as a policy straitjacket, and Bank of America economists expect him to withhold his own projection entirely, arguing either insufficient time or philosophical opposition. If he does, it’s a shot across the bow of the SEP itself. Warsh also wants a smaller balance sheet ($6.8 trillion and counting) and has signaled he’ll rethink how the Fed measures inflation — PCE, beware.
Oil tailwind, but don’t exhale yet
The one unambiguous piece of good news: Sunday’s U.S.-Iran peace deal and the promised reopening of the Strait of Hormuz have already pushed crude prices lower. WTI was trading around $77 per barrel Tuesday, well off the wartime highs. That should take some edge off headline inflation in the months ahead — but as the import-price data shows, it hasn’t flowed through yet. The EIA’s weekly petroleum report, due this morning, was expected to show a draw in crude inventories for the seventh consecutive week, though the magnitude will be scrutinized for any demand-side weakness.
What to watch next
- Warsh press conference (2:30 p.m. ET): Every word on inflation, the balance sheet, and forward guidance will be parsed. His tone — hawkish, dovish, or deliberately opaque — may move markets more than the statement itself.
- PCE inflation (June 25): The Fed’s preferred gauge. After this morning’s import-price shock, the core PCE print in eight days takes on even greater significance.
- Jobless claims (Thursday): The high-frequency labor-market pulse. With housing investment contracting for five quarters, any uptick in claims could amplify stagflation fears.
- Existing home sales (June 19): Friday’s data will confirm whether the starts collapse is mirrored on the existing-home side of the market.
The housing market is sending an unambiguous distress signal. Import prices are flashing persistent inflation. And Kevin Warsh is about to take the podium with both messages ringing in his ears. The first press conference of the Warsh era just became must-watch television.