An inflation measure the Fed uses to set policy rose 3.6% in July from a year ago. The increase met Wall Street expectations and tied the highest level in about 30 years.

At last week's Jackson Hole symposium, Fed Chair Jerome Powell signaled the Fed would begin tapering bond purchases by the end of the year, which could pressure rates higher.

Weekly jobless claims dropped again last week, hitting 340,000. Continuing claims fell to 2.78 million. Layoffs reached a 24-year low in August.

July’s pending home sales dropped 1.8% from June and were down 8.5% from a year ago. Inventory is slowly increasing, but there is still not enough supply to match demand.

Home prices rose 18% annually in June, up from a 16% increase in May, according to Case-Shiller. Prices are now 41% higher than their peak during the housing boom in 2006.

Construction spending was up in July, despite land and labor shortages. Single-family homebuilding spending grew 0.9%, driven by robust demand for housing.