The expectations of a rate cut by the Federal Reserve have significantly cooled down! US retail data grew higher than expected, signaling a potential return of inflation.

With the title of "terrifying data," US retail sales figures show that American consumer spending remains resilient. September retail data was unexpectedly revised upward, and with October retail sales continuing to grow beyond expectations month-on-month, mainly driven by car sales, other categories of sales also show acceleration as US consumers enter the holiday season. October US retail sales figures show that the core supporting the US economy - American consumer spending - remains strong, but also indicate a rising trend in inflation, prompting a significant cooling of expectations for rate cuts by the Fed in December and 2025 after the release of retail data. The latest data released by the US Commerce Department on Friday shows that unadjusted retail sales increased by 0.8% month-on-month in September after being adjusted for inflation, and increased by 0.4% month-on-month in October, both exceeding economists' expectations. excluding car sales, retail sales increased by 0.1%. Some economists believe that the continued unexpected growth in unadjusted retail sales, to a large extent, shows that "sticky inflation" forces consumers to spend more money on the same things, reflecting the strong consumer spending that supports the US economy's "soft landing" even more clearly and also indicates a certain degree of "re-inflation", as the effects of inflation are not excluded. In the US bond market, traders have already begun to price in expectations of "re-inflation". They expect that with the continued stickiness of inflation and a series of policies under the Trump administration - including tax cuts, immigration control, and tariffs known as the "MAGA policies", "re-inflation" may become a reality. The yield on 10-year US Treasuries may even approach 5%, affecting risk assets such as stocks. Of the 13 categories in the retail report, 8 showed growth, with the most significant increase in retail sales coming from electronics and appliance stores. Car sales saw their largest increase in three months. Sales in the e-commerce sector grew moderately, likely reflecting Amazon Prime member discounts, as well as similar scale promotions from retail giants like Walmart and Target. The good news is that the US economy remains resilient, but the bad news is that "re-inflation" seems to be getting closer. The upward revision of September retail sales data suggests that despite rising inflation, American consumers have shown strong spending in the final months of the year, which may indicate a very robust consumer performance during the holiday shopping season this year. However, the alarming news is that inflation rates, especially core inflation excluding energy and food prices, remain stubbornly high. Some large retailers have already begun to consider larger price increases, as they expect import tariffs under President-elect Donald Trump to rise, leading to a reduction in the quantity of goods available on the market and therefore a continuation of price increases. Data shows that the so-called control group of sales - a calculation including the government's measurement of US goods expenditure in GDP - unexpectedly declined by 0.1% in October, marking a significant drop after the largest increase since early 2023 earlier this year. This metric does not include food services, car dealerships, building materials stores, and gas stations. However, over the past three months, sales in the control group have unexpectedly increased by 4.6% year-on-year when measured on an annual basis, indicating a strong start to the fourth quarter for the US economy, but also indicating a continuing upward trend in core inflation, which could continue to weigh on expectations of Fed rate cuts. Combined with earlier inflation data showing an upward trend, these data may make Fed officials cautious about further rate cuts. Fed Chair Jerome Powell said at an event on Thursday that the recent performance of the US economy was "very good," making it possible for policymakers to cut rates more cautiously. After the data was released, the yield on 10-year US Treasury bonds rose sharply, while futures for the three major US stock indices continued to weaken. Some economists believe that while retail data is strong, the outlook for retailers remains challenging, as prices continue to rise after years of high prices, but not as dramatically as in 2022. So far, forecasts indicate that middle- and low-income consumer groups may be more restrained in their holiday shopping this year compared to last year. Additionally, the calendar effect of fewer shopping days between Thanksgiving and Christmas is expected to have a negative impact on sales. Economists will closely monitor sales on "Black Friday" and "Cyber Monday" to gauge consumer interest in the holiday shopping frenzy in the US. The earnings reports of Walmart and Target next week will also help guide market expectations for US consumer spending and inflation prospects. Before the release of October retail sales figures, the overall CPI in the US in October increased by 0.24% month-on-month (expected 0.20%), while the core CPI recorded 0.28% (expected 0.30%), which was basically in line with expectations. The total CPI in October remained at 0.2% for the fourth consecutive month, and the core CPI also remained at 0.3% for the third consecutive month. Structurally, the rebound in housing inflation and the relative stability of other core service items indicate that the momentum of inflation is continuing, which are significant signs of "re-inflation," with the risk of inflation rising far greater than the risk of decline. More importantly, expectations for Trump's "MAGA policy" are likely to further catalyze expectations of rising inflation. Expectations of Fed rate cuts have significantly cooled, with some traders even betting on a pause in rate cuts in December. Fed Governor Lael Brainard said policymakers must simultaneously focus on the central bank's inflation and employment goals, and noted that the labor market is cooling down, with progress towards achieving the Fed's 2% inflation target slowing. Brainard said on Thursday, "The trends of disinflation and cooling of the labor market continue but are slowing, which means we need to continue to focus on the two aspects of our mission." Minneapolis Fed President Neel Kashkari, who has taken a hawkish stance since 2023, warned recently in an interview that if...Unexpected inflation has risen before December, which may prompt the Federal Reserve to pause interest rate cuts.In 2025, FOMC voter and St. Louis Fed President Musa Lemma recently stated, "Recent information indicates that the risk of inflation stagnating in a downtrend, or even rising, has increased. Data shows that the economy is 'stronger than before, even possibly much stronger than before,' and several core inflation indicators have 'slightly increased.'" Fed Chairman Powell said on Thursday that the strong growth of the U.S. economy allows policymakers to be patient in deciding the magnitude and pace of interest rate cuts. Powell said in a speech to business leaders in Dallas, "The economy has not sent any signals that we need to cut rates urgently. The strong performance of the current economy allows us to make decisions more cautiously." "The inflation level is closer to our long-term 2% target, but has not yet reached it. We are committed to completing this task," Powell said. He also mentioned that the process of achieving this goal may "encounter some occasional bumps." The CPI and PPI data released this week have shown that U.S. inflation is sticky and heating up, prompting interest rate futures traders to significantly reduce their expectations for rate cuts by the Fed in December and next year. The "CME Fed Watch Tool" shows that after the release of rising CPI, PPI, and strong retail sales data, the probability of the Fed pausing rate cuts in December has increased from less than 30% to close to 40%, and there is speculation that the Fed may only cut rates twice next year, instead of the previously expected four times. David Kelly, Global Chief Market Strategist at JPMorgan Asset Management, warned earlier this week that if Trump wins the U.S. election, the Fed may even pause its rate cut easing cycle as early as December. Following Trump's announcement of winning the presidential election, economists from Nomura now expect the Fed to only cut rates once in 2025, compared to their previous expectation of four rate cuts by the Fed in 2025.