Key Points

At the latest meeting, the Fed chose to keep the benchmark federal funds rate unchanged.
Lower mortgage rates can drive higher housing turnover, which is not occurring at present.
Home Depot and Lowe's both forecast weak same-store sales growth in fiscal 2026.

Following the first meeting led by new Federal Reserve chair Kevin Warsh, officials announced that the federal funds rate would stay the same. The decision was unanimous as inflationary pressures remained a central concern.

The central bank released this update at 2 p.m. ET on June 17. Within two hours of the stock market close, shares of Home Depot and Lowe's Companies each declined between 2.5% and 3%. By the close of trading the next day on June 18, both retail stocks had largely recovered those losses.

Investors can still draw a useful lesson from the market reaction and resulting volatility.

Image source: Getty Images.

Macro factors influence the housing market

Interest rates affect the housing market in a direct way. When mortgage rates stay high, as they do now with the 30-year fixed rate at 6.47%, the expense of buying a home increases and monthly payments rise.

Homeowners who secured lower rates earlier may choose to remain in place, which creates a lock-in effect and reduces the supply of homes available for sale.

Home Depot and Lowe's operate within this constrained environment. Home Depot CEO Ted Decker noted on the Q1 2026 earnings call that higher rates keep housing turnover low, with the industry expecting limited growth this year and new construction starts trending downward.

Investors had hoped for rate reductions that would create better conditions for store traffic at both retailers.

Expectations should remain measured for now. Half of the participants at the latest Fed meeting project at least one rate increase in 2026, which is unwelcome news for shareholders. A higher-for-longer rate environment limits household confidence for major renovation spending.

These businesses must navigate the current cycle

Home Depot reported revenue of $41.8 billion in Q1 2026, while Lowe's recorded sales of $23.1 billion in its fiscal first quarter. The two companies lead the large home improvement sector, serving both DIY and professional customers with items such as power tools, appliances, lawn equipment, and flooring.

Both firms perform best when the broader economy supports strong consumer confidence and discretionary spending, conditions that are absent today. Home Depot and Lowe's each project same-store sales growth of just 1% at the midpoint for this fiscal year.

Shareholders will need patience while awaiting improvement in the underlying fundamentals.