Tonight's announcement, "The last important data before the Fed's September decision"

25 basis points or 50 basis points? The US August retail report to be released tonight may determine the extent of the Fed's rate cut this Wednesday.

At 8:30 pm Beijing time, the US Census Bureau will release the August retail data, which is the "last important data" before the Fed's September interest rate decision. According to FactSet's data:

Wall Street expects a 0.2% month-on-month increase in August retail sales, a significant drop from July's 1%;

Excluding automobiles and gasoline, retail sales are expected to increase by 0.5% month-on-month, slightly higher than the previous month's 0.4%.

There is growing concern that even excluding automobile and gasoline sales, core retail data may still be weak. The previously released July retail report showed pressure on sectors, especially dining out. The CPI report released last week showed that dining out prices in August only increased by 0.3% month-on-month, slightly higher than July's 0.2%.

Furthermore, the latest Beige Book from the Fed indicated a decrease in consumer spending in August. Many retailers, especially those targeting low-income consumers, have warned that Americans are very cautious and picky when it comes to purchasing goods and locations.

If retail data is too bad, is a 50 basis point rate cut possible?

In recent reports, Citigroup analyst Andrew Hollenhorst leans towards the Fed possibly taking a more cautious approach by cutting rates by 25 basis points. However, he points out that this is a difficult decision depending on the dynamics of the Fed's Federal Open Market Committee (FOMC) and the strength of tonight's retail sales report.

Hollenhorst believes that if the US August unemployment rate falls as expected, if retail data exceeds expectations, it will indicate resilience in both consumer and labor markets, paving the way for a more moderate rate cut. However, if the results are well below expectations, the Fed may be concerned that a weak labor market is dragging down consumer spending, which could lead to a larger rate cut.

Louis Navellier, founder and chief investment officer of fund management company Navellier, agrees with this.

In theory, if the August retail sales report is very bad, the Fed may cut the benchmark interest rate by 50 basis points on Wednesday.

Concerns about future economic forecasts, interest rate paths...

The impact of the retail report may not be limited to the September rate cut. Views on US consumers contained in it will also be incorporated into the Fed's quarterly updated economic forecast summary, which includes the Fed's latest forecasts for the US economy, inflation, and short-term interest rates.

Hollenhorst believes that by the end of 2024, the neutral interest rate level should show a "minimum" of a 75 basis point rate cut, meaning a 25 basis point rate cut at each meeting before the end of the year. However, if the labor market or consumer spending data deteriorates much faster than the market imagines, the Fed may have room for further rate cuts.

It is worth noting that due to flat retail sales in June, the surge in July, and the expected increase in August consumer spending, it will indicate whether consumers are willing to continue spending in the crucial holiday shopping season. The situation is not optimistic. Last week, consulting firm Deloitte released a holiday retail forecast estimating that holiday retail sales in 2024 will increase by 2.3% to 3.3% from November to January next year, reaching $1.58 trillion to $1.59 trillion, with growth rates potentially lower than the 4.3% in the same period last year.