Markets Lower September FED Rate Cut Odds to 25 bps

The FED has been holding rates unchanged at 5.50% after most major central banks lowered them in recent months, but the odds of a FED rate cut of 50 basis points in September jumped above 50% earlier this month as a result of a slowing US economy, as the data showed. However, the data of recent weeks has shown that the US consumer is still holding, so markets are scaling back on their expectations now.

Thursday’s U.S. retail sales report exceeded expectations, reflecting strong consumer activity. Walmart executives reinforced this positive outlook, highlighting that customers remain consistent and resilient despite broader economic challenges. This suggests that consumer spending is holding up well, even in the face of potential headwinds. On Friday, the University of Michigan’s consumer sentiment survey also painted a positive picture, though it seemed more influenced by political factors and fluctuations in petrol prices than by direct consumer spending patterns.

Consumer Survey from the University of Michigan

While inflation rates have stabilized, they remain elevated compared to pre-pandemic levels, indicating persistent price pressures in the economy. Despite these challenges, the overall sentiment remains cautiously optimistic according to the University of Michigan, with consumers showing resilience in their spending behavior.

Some economists that were predicting a US recession in 2025, have the likelihood that happening to 20%, based on the latest retail sales and unemployment claims figures released last Thursday, with the number of unemployment benefit applications last week being the lowest in a year, and July’s retail sales grew at their quickest pace in 17 months. These indicators of the U.S. economy’s strength contributed to stocks experiencing their best week of the year, as investors seized the opportunity to buy during a recent market dip.

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