The U.S. is in a battle to lower the costs to build housing, but it's losing—as factors including the Iran war and tariffs fuel rising expenses for home builders
Increasing costs for U.S. home builders, stemming from tariffs, ongoing geopolitical tensions like the Iran war, and the demand for AI infrastructure, are undermining efforts to alleviate housing expenses. This backdrop raises concerns around stagflation, compelling the Federal Reserve to reconsider its approach to interest rate cuts. Delays in rate normalization could strengthen the USD as investors adjust expectations in response to persistent inflation pressures within the construction sector.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The WSJ's outlook resonates with the themes projected by JPMorgan, suggesting that construction costs could hinder economic recovery, influencing monetary policy.
How firms align
JPMorgan maintains a target of 1.10, reflecting their alignment with the sentiment that rising costs will impact the Fed's rate strategy. On the other hand, BofA argues for a more cautious stance with a target of 1.04, suggesting that they do not fully agree with the prevailing inflation narrative driving expectations higher.
What the data shows
Recent data indicate increasing pressures on construction costs, which could result in a revision of economic growth forecasts. See /research/construction-costs-inflation for a detailed analysis of these trends.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Rising construction costs, influenced by geopolitical factors, support bullish USD sentiment.
- 02A delayed Fed response could provide upward momentum for the USD in the face of inflation.
- 03Watch for changes in construction data as a leading indicator for Fed policy shifts.
Market implications
Key levels to monitor include the 1.075 consensus for EUR/USD; any breach of this could signal stronger dollar sentiment. Upcoming Fed minutes could provide insight into their inflation outlook and potential rate adjustments.
Risks to this view
Any resolution of geopolitical tensions or significant decreases in material costs could alleviate inflation pressures, prompting earlier Fed rate cuts and undermining the bullish USD narrative.
Sentiment by currency
USD+EUR~JPY~GBP~Composite USD score: +0.35
Sources & References
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