Sales Surge Halts Fed's Hand: US Retail Growth Stalls Rate Cut


U.S. retail sales surpassed expectations in March, driven primarily by a surge in online shopping, marking another affirmation of the economy's steady growth trajectory.

A report from the Department of Commerce released earlier this week, following robust employment growth in March and mounting consumer inflation, has intensified speculation that the Federal Reserve might postpone interest rate hikes until September.

Some economists perceive diminishing probabilities of a rate cut this year.

The robust expansion in retail sales prompted Goldman Sachs economists to revise their forecast for first-quarter gross domestic product (GDP) growth upward to 3.1% year-over-year from the previous estimate of 2.5%. This follows a 3.4% growth in the economy in the fourth quarter of last year.

Economists claim that as economic activity accelerates, the pace of inflation tends to ease, potentially deferring the Fed's inclination towards rate cuts. They caution about the likelihood of delaying rate adjustments until the next year due to the absence of moderation in consumer spending and inflation.

Retail sales increased by 0.7% last month, according to the U.S. Census Bureau, Department of Commerce. Additionally, data for February was revised upward to a 0.9% gain, marking the highest level for the year. Despite Reuters economists forecasting a 0.3% rise in retail sales, the actual expansion in March was 4.0% year-over-year.

Despite the backdrop of escalating inflation and costs, spending continues its upward trajectory, defying predictions of financial strain among low-income households, buoyed by a robust labor market.

Bank of America's latest credit card data indicates that spending among lower-income households surpasses that of higher-income groups.

Economists observe that while inflation poses challenges for low-income consumers, they also stand to benefit more from a stable labor market, with the most significant wage increases observed among low-income workers since the onset of the pandemic.

Financial markets and the majority of economists have adjusted their forecasts for the timing of the first rate cut from June to September, anticipating two cuts instead of the previously expected three. Nonetheless, some economists speculate that the Fed might initiate its easing cycle in either June or July.

Starting from July of last year, the Federal Reserve has maintained rates within the range of 5.25% to 5.50%. However, as of March 2022, the base interest rate has been elevated by 525 basis points.

Login in Personal Account
Speed is one of the key success factors when it comes to news trading. At Gerchik & Co, order execution speed starts at 1 millisecond. Open a trading account and profit from each news!
Stay on top of the market developments by subscribing to our email newsletter and learn the news you can profit from!