Fed rate cut could boost sales | Wilnesh News

Just like Wall Street, home depot We are closely watching the Fed’s next steps.

Treasurer Richard McPhail told CNBC that as interest rates rise, homeowners are delaying moving into new homes or starting major projects that require financing. This waiting game will only get more intense as potential rate cuts loom.

“What our clients are telling their professionals is, ‘Everything I’m reading tells me that rates are going to be lower in three to six months,'” McPhail said. “‘Why should I borrow money now to fund this project instead of waiting a few months?'”

Chief Executive Ted Decker also told investors on Tuesday’s earnings call that many homeowners face a “golden handcuff dynamic” because they have mortgage rates as low as 3% and don’t want to move, locking themselves into higher rates. interest rate.

A rate cut could help Home Depot as sales slow. The company beat analysts’ expectations on quarterly profit and revenue on Tuesday but delivered disappointing results. Full year forecast. The company said it expected comparable sales, a metric that strips out the impact of store openings and closings and other one-time factors, to fall 3% to 4%. That’s a bigger drop than the 1% drop previously expected.

The Federal Reserve has given up on hints that it may cut interest rates soon. In late July, Federal Reserve Chairman Powell said that if economic data supports the central bank president’s decision, the central bank president may cut interest rates at the next meeting in September.

Some new data on Tuesday pointed in a positive direction. The producer price index, which measures wholesale prices, rose 0.1% in July, less than economists expected.

Decker said on a call with investors on Tuesday that it’s difficult to guess the “magic rate number” that will propel Home Depot’s business to grow again. But when mortgage rates fell late last year, he said the company saw an “immediate increase in housing activity,” including mortgage applications and mortgage refinancing applications.

He said a drop in mortgage rates to around 6.5% could be close to “a level where people are willing to participate.”

Rates have fluctuated, but have recently hovered close to that level. Earlier this month, the average interest rate on a 30-year fixed mortgage fell to 6.4%, according to statistics Mortgage News Daily. This is the lowest rate since April 2023.

But it’s unclear whether consumer uncertainty will continue Home Depot, even as mortgage rates remain low.

Home Depot leaders blamed part of its weak sales on customers being cautious, even though the vast majority of them own homes and their home equity has grown significantly.

“What’s happened recently is broader macroeconomic concerns,” Decker said on the call. “There’s a lot of noise in the political and geopolitical environment. Unemployment is rising. Inflation continues to erode disposable income, and I think as the As the quarter progresses, people just pause.”

Even with rate cuts, Decker said, “people may still pause a little bit until the issues are resolved.”

—CNBC Diana Orlick contributed to this report.