On Tuesday, Citi economists provided an analysis of the latest retail sales data, noting a slight increase of 0.1% month-over-month in August, with a notable rise in nonstore sales leading to a 0.3% increase in control group sales.
Despite the uptick, the economists believe this will not significantly alter market expectations for the Federal Reserve's policy rate decision. They anticipate a 25 basis point reduction at the Fed's meeting this week and foresee a total of 125 basis points in rate cuts for the year due to anticipated labor market softness.
According to the Citi economists, the August retail sales figures showed resilience, particularly as auto sales declined less than expected. The control group's sales, which are considered a more reliable gauge of underlying consumer demand, saw a boost mainly from nonstore retailers, which includes online shopping platforms.
The retail sales data, which often influences market forecasts for Federal Reserve policy actions, had the potential to sway opinions on the likelihood of a more aggressive 50 basis point rate cut. However, the economists noted that the marginal increase in sales was insufficient to cause a meaningful shift in market pricing.
As the Federal Reserve gears up for its meeting this week, the Citi economists have set their expectations for a modest rate cut. They maintain that regardless of the decision on the immediate rate cut, further weakening in the employment sector will likely prompt the Federal Reserve to implement additional rate reductions totaling 125 basis points throughout the current year.
The economists' forecast comes amid ongoing discussions about the health of the U.S. economy and the Federal Reserve's strategy to address potential downturns. The retail sales data serves as a critical indicator of consumer spending, which is a key driver of economic growth.
In other recent news, expectations of a significant Federal Reserve interest rate cut have risen, with speculation leaning towards a 50 basis point reduction. Analysts from Evercore ISI have reiterated their belief that a 50 basis point cut is appropriate.
Major financial institutions, including Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), and Citi have shared their predictions regarding the Federal Reserve's next moves. These recent developments have been influenced by various factors such as labor market conditions, inflation trends, and other economic indicators.
Citi analysts project that the Federal Reserve may signal a more dovish stance, potentially implementing larger cuts in the future, influenced by labor market conditions. Wells Fargo, on the other hand, anticipates a 25 basis point rate cut in the upcoming week, based on analysis of labor and inflation data. Bank of America also forecasts a 25 basis point rate cut, marking the end of the longest pause following a rate hike cycle in the Fed's history.
Goldman Sachs maintains its forecast of a 25 basis point cut next week, with additional 25 basis point cuts predicted for November and December, resulting in a total reduction of 75 basis points by the end of the year. This is based on the current state of the U.S. labor market and inflation trends.
Finally, Citi analysts forecast a series of interest rate cuts totaling 125 basis points by the end of the year, starting with a 25 basis point reduction next week, followed by more substantial cuts later in the year. This is based on labor market data indicating an economy on the brink of a recession and a potential for further weakening in labor markets.
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