Retail sales add new complication to Fed rate cut forecasts

Report raises questions about Trump administration's tariff and budget-cut policies.

Mar 17, 2025 - 14:14

Retail sales add new complication to Fed rate cut forecasts

U.S. retail sales remained sluggish last month amid a broader pullback in consumer spending and overall sentiment tied to the tariff and budget-cutting policies of President Donald Trump.

Headline sales rose 0.2% last month to a collective tally of $722.7 billion, the Commerce Department reported Monday, well south of Wall Street's consensus forecast of a 0.6% gain but a modest rebound from the downwardly revised January reading of negative 1.2%.

The closely tracked control-group number, which excludes autos, building materials, office supplies, gas-station sales and tobacco, and which feeds into the government's GDP calculations, rose 1% on the month, firmly ahead of the Wall Street consensus forecast of a 0.4% gain.

Fed Chairman Jerome Powell and his colleagues will publish fresh growth and inflation forecasts later this week.
OLIVIER DOULIERY/Getty Images

Stocks were little changed in the wake of the data release, with futures contracts tied to the S&P 500 suggesting a modest 4-point gain and those linked to the Dow Jones Industrial Average priced for a 60-point decline The tech-focused Nasdaq is called 55 points higher.

Benchmark 10-year Treasury not yields bumped 2 basis points higher to 4.308% while 2-year notes rose 4 basis points to 4.059%.

Last week, the University of Michigan's benchmark consumer sentiment index for March plunged to the lowest level in more than two years and unveiled one of the biggest jumps in longer-term inflation expectations since the early 1990s.

Earlier this month, Target (TGT) CEO Brian Cornell said tariffs on goods from Canada and Mexico would likely add price increases "within weeks." He forecast flat full-year same-store sales amid "more pronounced" economic uncertainty.

"Downside risks to the economic outlook have increased substantially over the last month," said Bill Adams, chief economist at Comerica Bank in Dallas.

"The klaxon of layoff headlines, a falling stock market, and tariff fears were a big blow to consumer confidence in early March," he added.

"The pullback in confidence is becoming a real threat to consumer spending, which as is often repeated accounts for two-thirds of U.S. economic activity."

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The Atlanta Fed's GDPNow tracking tool, which will be updated later today, pegs the current-quarter contraction at around 2.4%, a modest improvement from its -2.8% estimate earlier in the month.

Later this week, the Federal Reserve will publish fresh growth and inflation forecasts for this year and next when it concludes its two-day policy meeting in Washington.

Analysts aren't expecting any change to the central bank's benchmark lending rate, which sits at 4.375%. But they see officials lowering their 2025 GDP growth estimates while nudging their PCE inflation estimates higher as the impact of tariff, immigration and federal government job cuts takes hold.