U.S. Retail Sales Data Shows Weak Performance, Market Expects Two 2025 Rate Cuts

On June 17, analysts from a financial website noted that prior to the release of the U.S. May retail sales data, the market was pricing in a Fed rate cut by year-end at 49 basis points. Post-release, this shifted slightly to 48.5 basis points. The FOMC meeting, scheduled to announce its rate decision, highlighted retail sales data as a key discussion point. The report indicated an overall weak performance, but the control group, a key indicator of consumer conditions, showed slightly better-than-expected results with a prior value upwardly revised. The data remains challenging to interpret due to a sharp sales spike in March, followed by two consecutive months of declines.

The latest U.S. retail sales data continues to show subdued performance, with market pricing largely unchanged. Selling prices remain at historically elevated levels, indicating underlying inflationary pressures despite weak sales. The market's reaction has been muted, with traders awaiting key data and central bank events later in the week. Lingering tensions in the Middle East add uncertainty, and the import price report for May, expected to show a slight increase, is also closely watched.

This subdued retail sales data comes as the market prices in two rate cuts for 2025, in September and December. This pricing has remained unchanged from a week ago, suggesting that market expectations for monetary policy have not been significantly impacted by the latest retail sales data. However, recent relatively subdued inflation prints have given the Federal Reserve reason to be optimistic, though inflation has not fallen enough for rate cuts. The market's pricing of two rate cuts for 2025 indicates little pressure for the Fed to change their forecast, despite the continued subdued performance in retail sales. Traders remain unconvinced that the data warrants a change in their expectations for monetary policy.