The prospect of a Federal Reserve rate cut has gained significant traction. As of early September 2025, futures markets were pricing in over a 90% chance of a 25-basis-point reduction. This shift reflects a mix of slower economic growth, a cooling labor market, and easing inflationary pressure. In July, the PCE price index rose 2.6% year-on-year, with core PCE up 2.9%. Although still above the Fed’s 2% target, the figures have not dampened market bets on monetary easing.
If a rate cut materializes, its impact will extend beyond the U.S. dollar and capital markets to rate-sensitive sectors of the real economy. For polyurethane, key downstream segments such as construction, real estate, insulation materials, and upholstered furniture will be the most critical areas to watch.
Construction and Real Estate: Rate-Sensitive Demand
The U.S. housing market remains subdued. In July 2025, the Pending Home Sales Index fell 0.4% month-on-month. Mortgage rates have eased from their peaks but remain high enough to restrain demand. A rate cut could further lower borrowing costs, relieving pressure on homebuyers and unlocking pent-up demand. Historically, real estate sales and new construction tend to pick up three to six months after rates decline.
Insulation materials stand to benefit as well. Polyurethane rigid foam, valued for its thermal performance, is widely used in energy-efficient building upgrades. Lower financing costs would encourage more residential and commercial projects, and with federal and state energy standards tightening, demand for insulation is likely to strengthen. Although short-term building permit data remain weak, the long-term trajectory of energy retrofits and green construction remains intact.
Upholstered Furniture: Policy Shocks and Consumer Cycles
Upholstered furniture represents the largest outlet for polyurethane flexible foam. Currently, the U.S. furniture market faces both domestic and external challenges. The Trump administration has launched a Section 232 investigation into imported furniture, raising the possibility of tariffs on products from Vietnam and China. In 2024, U.S. furniture imports totaled USD 25.5 billion, nearly 60% of which came from these two countries. A tariff could initially trigger front-loaded shipments, temporarily boosting demand for TDI.
Vietnam, a major U.S. furniture production base, relies heavily on Chinese TDI imports. Between January and July 2025, China exported around 29,000 tons of TDI to Vietnam, making up the bulk of its imports. If tariffs disrupt Vietnam’s capacity expansion, global TDI trade flows could be reshaped.At the same time, a rate cut could help revive consumer sentiment and housing activity, feeding into demand for big-ticket items like mattresses and sofas. These products are closely linked to real estate transactions and disposable income. While current retail sales remain muted, improved credit conditions could gradually lift replacement demand.
Conclusion
A Fed rate cut offers a window of opportunity for polyurethane downstream markets, but the effect is not uniformly positive. Lower borrowing costs may spur real estate and construction activity, yet trade frictions and inflation dynamics remain significant uncertainties. Insulation demand is supported by long-term energy efficiency goals, while upholstered furniture is more vulnerable to consumer cycles and policy shifts. For market participants, cautious optimism and close monitoring of the September FOMC meeting, labor market data, and the furniture tariff investigation will be essential to adjusting supply chains and inventory strategies.
