Reality check for the Fed as Inflation and Retail Sales fall

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The Fed were issued a reality check this afternoon as Inflation and Retail Sales levels both disappointed, showing that whilst the US economy is front-running on a global scale, progress is not without stumbling blocks.
After chair Yellen noted at the recent FOMC meeting that Inflation levels were on target for the long term around 2%, news that April’s level dropped 0.2% won’t be hugely welcome. The longer term is crucial, so the 2.0% mark will act as a threshold that Mrs Yellen won’t want to push below, as investors will start to speculate on a June hike if we see another pullback next month. Whilst the labour market continues to impress, if consumers are spending less and Inflation levels are pulling back the Fed won’t be in a rush to hike rates again. Futures markets deduce the probability of a June hike around the 70% mark but with Central Banks notably more cautious than the average market participant, June chances could start to level out more around the 50/50 level.

US dollar dips after consumer price growth and retail sales disappoint

Alex Lydall quoted in CityAM

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