Surprise growth in US retail sales in August, will the Federal Reserve still cut interest rates by 50 basis points?
US retail sales unexpectedly increased by 0.1% in August, surpassing market expectations of a 0.2% decline. Despite slowing recruitment and wage growth, household demand remains strong. The Federal Reserve will announce its interest rate decision on Wednesday, with market expectations divided between a 25 basis point cut and a 50 basis point cut. Most economists believe that a 25 basis point cut is more appropriate, while traders have a 67% expectation for a 50 basis point cut
According to the VESYNC APP, thanks to the boost in online sales, retail sales in the United States unexpectedly increased in August. Data released by the U.S. Department of Commerce on Tuesday showed a month-on-month growth of 0.1% in August retail sales, surpassing the market's expected decline of 0.2%. Additionally, July retail sales were revised up to 1.1%.
Among the 13 categories in the report, 5 categories saw sales growth, while others such as electronics, appliances, clothing, and furniture experienced declines. Furthermore, sales revenue at gas stations decreased due to falling gasoline prices.
The data released on Tuesday indicated that despite signs of slowing recruitment and wage growth, mid-term household demand remained strong in the third quarter.
Moreover, economists anticipate that a combination of slowing job growth, rising borrowing costs, depletion of savings during the pandemic, and increasing living costs will eventually lead U.S. consumers to cut back on spending.
For policymakers, these data also suggest a solid foundation for the U.S. economy. The Federal Reserve will announce its September interest rate decision on Wednesday Eastern Time. The market currently expects the Fed to start an interest rate cut cycle, but there is still a debate on whether it will be a 25 basis point cut or a 50 basis point cut.
Joseph Brusuelas, Chief Economist at RSM US, wrote on social platform X, "It is impossible for the August sales report to influence the Fed's interest rate decision. Considering the challenges in the service sector, I still believe that a 25 basis point cut is the right choice."
Most economists expect the Fed to cut rates by 25 basis points, as they believe the U.S. economy is not in distress and it is not worth lowering rates by 50 basis points as the financial markets anticipate.
However, according to the Federal Watch Tool of the Chicago Mercantile Exchange (CME), traders see a 67.0% chance of a 50 basis point rate cut, up from 62.0% on Monday