US Federal Reserve reassesses rate expectations after weak retail sales

American consumers did something in July they hadn’t done in nine months: they pulled back. Retail and food services sales came in at $763.6 billion, a 0.6% decline from June, according to preliminary estimates from the US Census Bureau released on August 14. Markets had been expecting a modest increase. They got the opposite. The miss was bad enough on its own. Paired with a University of Michigan consumer sentiment reading that cratered to 51.0 from 55.2, it painted a picture of an economy losing momentum at precisely the wrong time for hawks at the Federal Reserve. Rate hike odds take a beating A month ago, traders were pricing in roughly a coin-flip chance that the Fed would raise rates at its September FOMC meeting. That probability has now collapsed to somewhere between 22.5% and 31%. The Fed has kept rates elevated for years to combat inflation that has stubbornly exceeded its 2% target for more than half a decade. Two-year Treasury yields dropped in response to the data, a textbook reaction when markets start pricing in a less aggressive central bank. The retail sales report didn’t arrive in isolation. It followed weak nonfarm payroll and CPI readings that had already start...