US Consumer Sentiment Rises to Five-Month High in Broad Advance

Consumer sentiment in the United States has reached a five-month high, signaling improved confidence among households. This follows a series of policy changes aimed at stabilizing the housing market and broader economic conditions. Despite these developments, structural challenges in housing supply remain a key concern for economists and analysts.

The Trump administration has implemented a $200 billion mortgage bond purchase program to reduce borrowing costs and improve housing affordability. However, early evidence suggests that this initiative has only delivered marginal relief. Mortgage rates have seen slight declines, but structural supply shortages are seen as the primary constraint on the housing market.

Rising Treasury yields and geopolitical risks are expected to exert upward pressure on borrowing costs in the coming months. These factors are counteracting the limited benefits from the administration's bond-buying efforts.

Why Did This Happen?

The administration's plan to bolster housing affordability involves government-backed agencies buying mortgage-backed securities. The rationale for this approach is to offset the Federal Reserve's reduction in its mortgage bond holdings. The Fed's mortgage bond portfolio has declined from $2.7 trillion in mid-2022 to around $2 trillion.

Treasury Secretary Scott Bessent has emphasized that the bond purchases are intended to support the housing market during a period of structural supply shortages. However, many economists argue that the primary market impact of such policies often comes at the announcement stage rather than through gradual implementation.

What Are Analysts Watching Next?

The housing market's core issue remains a lack of supply, not financing or demand. Analysts and central banking experts question the effectiveness of the bond purchase program in addressing this structural issue. Many argue that without a meaningful increase in housing stock, affordability is unlikely to improve significantly for most Americans.

Inflation remains above the Federal Reserve's target, with December CPI showing prices rising at a 2.7% annualized rate. This suggests that the risk of inflationary pressure persisting could impact consumer spending and broader economic stability.

Food prices remain elevated, rising at an annual pace of 3.1% last month due to sharply higher costs of staples like beef and coffee. This trend has implications for lower-income households, where inflation has steadily eroded savings and checking balances.

What Are the Global Implications?

The United States is not the only country facing inflationary pressures. In Singapore, core inflation for 2025 averaged 0.7%, down from 2.8% in 2024. The Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI) expect core inflation in 2026 to rise from its low levels last year.

Japan's inflation has also slowed, with consumer prices excluding fresh food rising 2.4% in December from a year earlier. This is the first slowdown in four months and is attributed to government subsidies and the end of previous energy subsidies.

Global economic uncertainty remains a key factor influencing market behavior. Inflation expectations in Japan remain near a record high, with households expecting prices to rise by 11.6% over the next year on average.

The U.S. economy has shown resilience in 2025, with unemployment rates remaining low by historical standards and consumer spending robust. However, job creation slowed in the second half of 2025, and inflation remains a concern for many households.

The Federal Reserve's decision on future rate hikes and the broader global economic outlook will be key factors to watch in the coming months. The U.S. economy is expected to continue growing, but the risks of overheating remain due to aggressive fiscal and monetary policies.