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Another Rate Hike? Seriously?

Jul. 17, 2017 10:29 AM ETSPY, TLT29 Comments


  • The Retail Sales Control Group fell 0.1% vs. last month.
  • Retail Sales were worse than expectations and caused even further cuts to GDP estimates.
  • The underlying data in retail sales is actually even worse than the headline number with nearly every category showing deceleration.
  • Inflation continues to decelerate and came if weaker than market expectations.
  • The last two times the data was at this level, the Fed was gearing up to do QE. Now they are raising rates? Seriously?


Retail sales for the June reporting period were very weak and caused even the most optimistic analysts to question the prospects for high economic growth. I have consistently been on the opposite side of this, forecasting growth would continue to come in below estimates and that so far is what has been happening.

The retail sales control group, the number that feeds into GDP, declined to 2.48% year over year growth from 3.71% last month and down from 5.43% in January of this year.

Inflation decelerated to 1.65% this month; down from 2.54% in January of this year.

The Atlanta Fed continues to revise their estimate for Q2 GDP and now is forecasting growth of 2.4%. This is very far from 4.3%, where they started just a few weeks ago.

My estimate for Q2 GDP for the past several weeks has been 1.9%-2.4% and it is looking more likely that it will end up being in the lower end of that range by quarter end.

How can the Federal Reserve justify another rate hike with the recent data that was reported? They can't.

Below I will break down the recent data that was reported for retail sales and inflation and explain why the notion that the Fed will raise rates again is hypocritical to say the least.

Retail Sales Breakdown:

Source: (Census Bureau)

Retail sales is decelerating sharply and is now at levels of growth that were seen at the start of the last two recessions.

Retail sales is reported in nominal dollars (not adjusted for inflation) so to get real retail sales, a number more applicable to real GDP, you must make the adjustments on your own.

Below is a smoothed chart of real retail sales and the picture is even more troubling for the Fed if they

This article was written by

Eric Basmajian profile picture
Tracking Economic Inflection Points To Guide Your Asset Allocation Strategy

Eric Basmajian is an economic cycle analyst and the Founder of EPB Macro Research, an economics-based research firm focusing on inflection points in economic growth and the impact on asset prices.

Prior to EPB Macro Research, Eric worked on the buy-side of the financial sector as an analyst at Panorama Partners, a quantitative hedge fund specializing in equity derivatives. 

Eric holds a Bachelor’s degree in economics from New York University.

EPB Macro Research offers premium economic cycle research on Seeking Alpha. 

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Analyst’s Disclosure: I am/we are long TLT, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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