U.S. July Retail Sales Show Resilience — Upward Revision Weakens Rate Cut Bets

TradingKey - On August 15 (U.S. Eastern Time), the U.S. Census Bureau released the latest retail sales data. July retail sales rose 0.5% month-over-month, while June’s figure was revised up slightly to 0.9% from 0.8%. Year-over-year, retail sales grew 3.9%, and real (inflation-adjusted) retail sales increased 1.2% year-over-year.

[Source: CmeGroup.com]

Following the report, market traders scaled back expectations for an upcoming Federal Reserve rate cut, as the data signaled stronger-than-expected consumer demand.

The upward revision to prior months’ data suggests the economy has not yet shown signs of broad weakness. Some analysts believe consumers may have pulled forward purchases in anticipation of price hikes from new tariffs set to take effect in August — reflecting strong underlying demand and economic resilience.

Market participants now await August’s data to see whether consumer spending weakens once tariffs are fully implemented. So far, aside from the soft July employment report — which President Trump dismissed as “fake data” from the Bureau of Labor Statistics — most economic indicators remain solid.

Austan Goolsbee, President of the Chicago Fed, said: “If we get signals in September or later in the fall that we’re not entering an inflation spiral, then we can move toward rate cuts.”

While most FOMC members agree that tariffs will lift inflation in the second half of 2025, there remains a sharp divide over whether the impact will be temporary or persistent.

Earlier, weakening labor markets and slower pass-through of tariffs into consumer prices had strengthened the case for easing. But now, strong wholesale inflation, rising services inflation, and early signs that auto prices are beginning to reflect new tariffs are giving hawkish policymakers reason to stay cautious.

In short, while many FOMC members acknowledge that tariffs will push inflation higher in the near term, the debate over how long those effects will last continues to shape the path forward. For now, resilient data across wholesale prices, services, and auto markets is keeping the door open for a September cut — but likely only a 25-basis-point move, and only if upcoming employment and inflation data cooperate.