Retail Sales Come in Better-Than-Expected
Mid-week, and off all-time closing highs for the blue-chip Dow index, we have lots on our plate in terms of economic news. The final day of the G-7 summit in Evian, France is today, we have series of economic reports both before and after today’s opening bell, and this marks the first meeting of the Federal Open Market Committee (FOMC) with its new Chair, Kevin Warsh.
With interest rates hovering at +3.50-3.75% all year — the FOMC last cut rates in December of 2025 — and with inflation moving higher in economic prints of late, there is a near-zero chance the Fed cuts rates today. It will be interesting to see, however, if new Fed Chair Kevin Warsh lays plain his argument for lowering rates — which he advocated ahead of his nomination from President Trump — or if he lets the vote speak for itself and keeps his cards close to the vest. This might make for a trying press conference following the policy release this afternoon.
Interest rates plateau’d at recent highs +175 basis points (bps) higher than they are at present, +5.25-5.50%, from July 2023 through September of 2024, at which time they cut -50 bps. Keep in mind, inflation levels had bloomed to 40-year highs by the summer of 2022, and the FOMC, then led by Chair Jerome Powell, while late to setting rates higher and letting securities expire from the balance sheet, became disciplined in its squeezing inflation from the economy over time, despite unprecedented pressures from the White House to cut rates.
With Warsh newly installed in the post, we’re at a bit of a crossroads. The headline Inflation Rate is back up to +4.2%, with PPI wholesale inflation levels at +6.5% — the highest since November of 2022. A few voting Fed members — including, presumably, Powell, who stays on as Fed Governor for the time being — have advocated not only not lowering rates under current economic conditions, but changing course from its previous “downward bias” for future rate moves.
We know Fed Governor Stephen Miran will vote to cut rates by at least -25 bps today, which he has every FOMC meeting since being installed onto the Fed last September. Fed Governor Christopher Waller, who had voted to cut rates last fall, has pivoted toward a more hawkish stance in recent months, including being one of those FOMC members in favor of losing the “downward bias.” The closest advocate to Miran’s dovish stance on the FOMC currently is Fed Governor Miki Bowman, who had forecast three rate cuts in 2026 and wants to keep the “downward bias” in monetary policy.
The ball is in Kevin Warsh’s court this afternoon. In the past, we have seen equities markets grow unsteady as a new Fed Chair finds his or her bearings initially; Warsh will need to thread a thin needle to leave both hawks and doves relatively satisfied as his presser concludes ahead of today’s closing bell.
Retail Sales Move Higher in May: +0.9%
By way of example, U.S. Retail Sales for May came in 40 bps higher than projections this morning, to +0.9%. This is the highest print since March, and more than double the prior month’s downwardly revised +0.4%. Subtracting big-ticket auto sales, this ticks up to +0.8%, up +10 bps month over month. Ex-autos and gas, +0.5% matched the unrevised April tally, so we see how — unsurprisingly — higher energy prices have manifest themselves in retail numbers.
The Control figure is that which makes its way to GDP configurations, and this came in higher than expected at +0.7% — the second-strongest print of the year so far. We see the American consumer doing their part in this data, which presents the current economy as a healthy one. But it drifts further from the pier of warranted interest rate cuts.
Pending Home Sales After the Open: +1% Expected
After today’s opening bell, we’ll see Pending Home Sales results, which are expected to come down a bit from the prior month’s +1.4% to +1.0% in May. This would make four consecutive months of positive Pending Home Sales, which is something we haven’t seen since the fall of 2024. Anything positive from the housing market would be welcome news, even if they also take us farther away from rate-cut plausibility.
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This article originally published on Zacks Investment Research (zacks.com).
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