With the U.S. stock market perched close to six-month lows, investors anxiously wait to see what the Federal Reserve has in store with its policy meeting and this week’s release of retail sales numbers. Both occurrences are forecast to provide insights into the economy’s direction despite prevalent uncertainties.
The Federal Open Market Committee, or FOMC, meets on March 18-19. There is a market view that the Fed will keep the federal funds rate at the current level of 4.25% to 4.50%, the second in a row without a rate hike. The pause comes after the string of rate cuts amounting to 100 basis points in late 2024.
Investors will pay close attention to the Fed’s quarterly economic projections and the “dot plot,” which shows policymakers’ forecasts for the fed-funds rate. The comments of Fed Chair Jerome Powell will also be watched for clues about the central bank’s view of the economy and policy going forward.
Retail Sales Data
The U.S. Census Bureau will publish February retail sales data on March 17. Economists are expecting a rebound, projecting a 0.7% rise after a 0.9% fall in January. This anticipated increase comes from a possible lift from auto and gas station purchases.
Consumer spending is a vital source of U.S. economic activity, and retail sales are an important gauge of consumer spending. A better-than-expected reading would be seen as an indicator of consumer strength, while a poorer result would raise worries about an economic downturn.
Market Sentiment and Economic Indicators
Recent statistics show increasing concern on the part of consumers. The University of Michigan consumer sentiment index fell to 57.9 in March, the lowest level since November 2022, from 64.7 in February. The drop is the third straight monthly decline, as consumers voiced concerns about policy and economic uncertainty.
At the same time, expectations of inflation have increased. According to a survey from the University of Michigan, long-run expectations of inflation in the next 5 to 10 years soared to 3.9% from 3.5% in February, the highest since 1993. Expectations of inflation over the next year also rose to 4.9% in March from 4.3% in February.
Impact of Tariff Policies
President Donald Trump’s policies of tariffs have added new levels of uncertainty. The policies have had an impact on consumer and business confidence, and this has caused a slowing of consumer consumption and manufacturing. Traffic in U.S. stores declined by 4.3% year-over-year in early March, and traffic to major retailers such as Walmart, Target, and Best Buy has been down.
The tariffs have also made the Federal Reserve’s policy choices more complicated. Although the Fed looks for data-dependent clarity, the volatility of trade policies makes it difficult to predict economic outcomes. This uncertainty could affect the Fed’s strategy in future rate choices.
Outlook for Interest Rates
Despite the current requirements of maintaining rates steady, other economists predict the Fed could announce rate cuts by later this year. Slowing growth projections and higher inflation may prompt the central bank to adjust its monetary policy course in the second half of 2025.
The upcoming Federal Reserve session and the announcement of retail sales data are major events capable of influencing market trends dramatically. Investors and policymakers alike will monitor these events with the aim of understanding the economy’s strength and basing their decisions on facts in an environment of uncertainty.
