An interest rate reduction could potentially increase Home Depot's sales.

• In a call with CNBC, Home Depot CFO Richard McPhail stated that consumers anticipate a Federal Reserve interest rate cut and believe it will occur imminently.
• Higher interest rates have negatively impacted the home improvement retailer by slowing down housing turnover and decreasing demand for larger projects.
• Even if mortgage rates decline, consumer uncertainty may persist, according to CEO Ted Decker.

The Federal Reserve's next move is being closely monitored by Wall Street.

Richard McPhail, CFO, stated in an interview with CNBC that homeowners have delayed moving into new homes or starting significant projects that require financing due to higher interest rates. This delay has intensified with the possibility of an interest rate cut.

"McPhail stated, "Our customers convey to their experts that they believe interest rates will decrease in the next three to six months. The question they ask is, 'Why should I borrow to finance the project now instead of waiting a few months?'""

On a Tuesday earnings call, CEO Ted Decker informed investors that many homeowners are facing a "golden handcuffs dynamic" due to having low mortgages of 3% and being reluctant to move, which locks them into a higher rate.

A decrease in interest rates could aid in boosting sales for Home Depot, which have been slowing down. On Tuesday, the company surpassed analysts' expectations for quarterly earnings and revenue. However, they provided a dismal full-year forecast, stating that they expect comparable sales to decline by 3% to 4%, which is a more significant drop than the previously anticipated 1% decline.

If the economic data supports it, the Federal Reserve may cut interest rates at their next meeting in September, as suggested by Fed Chair Jerome Powell in late July.

New information on Tuesday indicated a positive trend. The producer price index, which gauges wholesale prices, increased by 0.1% in July, although this was lower than what economists had predicted.

On Tuesday's call with investors, Decker stated that it is challenging to predict the "magical rate number" that would revive Home Depot's business. However, he added that when mortgage rates decreased late last year, the company experienced an "immediate increase in housing activity," including mortgage applications and refinancing applications.

He stated that a decrease in mortgage rates to approximately 6.5% would likely attract more people.

Since April 2023, the average rate on a 30-year fixed mortgage has been the lowest, dropping to 6.4% early this month, according to Mortgage News Daily.

Even with lower mortgage rates, consumer uncertainty may still hinder Home Depot's performance.

Despite the majority of Home Depot's customers owning homes and experiencing significant home equity gains, the company's leaders attributed some of its weaker sales to a newfound sense of caution among its customers.

"According to Decker, the recent focus has shifted to the macroeconomy, with concerns about the political and geopolitical environment, rising unemployment, and inflation eroding disposable income. People have taken a break as they navigated through the quarter."

Despite the interest rate cut, Decker stated that individuals may still hesitate before making a decision until more clarity is provided.

— CNBC's Diana Olick contributed to this report.