Retail Sales and Economic Data Heat Up Before Fed's Crucial Rate Decision

I watched the markets rally yesterday with TSLA surging over 5% and NVDA climbing nearly 3% while I couldn’t help but wonder if this optimism might be premature. The new economic data released this morning paints a concerning picture that could throw cold water on the rate cut party everyone’s been planning.

Retail sales doubled expectations in August, coming in at +0.6% - reverting to the baseline we saw in late 2024 before Trump’s administration policies created market volatility. Even when stripping out auto sales, we’re still seeing numbers 30 basis points above expectations. The market seems blissfully unconcerned, but I’m skeptical.

Import prices swung positive last month at +0.3% versus an expected -0.2% decline. This marks the first consecutive positive report since February. Meanwhile, exports hit +0.3%, with a scorching year-over-year increase of 3.4% - the hottest we’ve seen in 2025. You’d need to go back to 2022 for higher export price levels, despite our ongoing international tariff battles.

The Fed meeting starting today brings its own drama. Stephen Miran, who’s temporarily left his position as Chairman of the Presidential Council of Economic Advisors to join the FOMC, has previously argued rates are 300 basis points too high. His vote will likely push for a much more aggressive cut than the 25 basis points markets expect from Powell.

Last meeting saw multiple dissents for the first time in 30 years, with Governors Waller and Bowman voting for cuts. Meanwhile, Lisa Cook remains in her position despite Trump’s allegations of financial improprieties.

The speculation around a 50 basis point cut has mostly faded, replaced by expectations of three cuts by year-end. But Powell’s tone at tomorrow’s press conference will reveal whether he shares the market’s optimism - and today’s hotter inflation metrics might make him more cautious than investors hope.

I can’t help but think we’re setting ourselves up for disappointment. The market seems to be ignoring these warning signs, drunk on the promise of easier money ahead. But what if Powell doesn’t deliver?