Rate Hike Concerns on the Rise: What Should Investors Focus on Next?
Despite high interest rates and concerns over a weakening economy, retail sales in September increased by 0.7%, which is well above the estimated 0.3%. Gas station sales played a significant role in this growth due to a rise of 0.9% triggered by an increase in gas prices.
The U.S. consumer cannot stop spending," said David Russell, global head of market strategy at TradeStation. "All three retail sales reports for Q3 were above estimates, which puts us on track for a strong GDP number later this month. It also gives the Fed zero reason to loosen policy, which keeps the 10-year Treasury yield pushing toward 5%."
The retail report is considered an important factor for the Federal Reserve as officials contemplate the future of monetary policy. While markets largely expect the Fed is done raising rates for this cycle, an unexpectedly strong consumer complicates the equation. Fed Chair Jerome Powell is scheduled to speak Thursday in New York, an event that markets will be watching closely for some indication about where he thinks rates are headed.
Market pricing assumes a near certainty that the FOMC will not hike then, but it could choose to do so at future meetings if economic data remains strong.
I see an economy that is much further along the path to demand normalization than much of the data would tell you. But the path for inflation isn't yet clear," Barkin, a nonvoting member this year on the Fed's rate-setting committee, told a group of real estate professionals. "We have time to see if we have done enough, or whether there's more work to do."
Source: CNBC, Bloomberg, CME
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