Retail Sales Come in Better-Than-Expected

• Retail Sales rose 0.9% in May, 40 basis points above forecasts, with the Control figure (used in GDP calculations) reaching 0.7%, the second-strongest print of 2026
• Current interest rates sit at 3.50-3.75%, down 175 basis points from the July 2023 peak of 5.25-5.50%, with headline inflation back up to 4.2% and PPI at 6.5%, the highest since November 2022
• New Fed Chair Kevin Warsh faces a divided FOMC on his first meeting, with near-zero chance of rate cuts today as strong economic data conflicts with his previously stated dovish stance

Summary: Retail Sales Beat Expectations; FOMC Meeting in Focus

Key Economic Data:

U.S. Retail Sales for May surged +0.9%, significantly exceeding expectations by 40 basis points and marking the highest reading since March. This more than doubled April's downwardly revised +0.4%. Excluding autos, sales rose +0.8%, while the control group figure (used in GDP calculations) posted a strong +0.7%—the second-strongest of the year.

Federal Reserve Developments:

The FOMC convenes today for its first meeting under new Chair Kevin Warsh, with current interest rates holding at +3.50-3.75% (unchanged since December 2025). Market expectations for a rate cut are near zero, as inflation pressures persist with headline inflation at +4.2% and PPI wholesale inflation at +6.5%—the highest since November 2022.

Policy Tensions:

Warsh faces a challenging balance between dovish and hawkish FOMC members. Fed Governor Stephen Miran supports cutting rates by at least 25 basis points, while Christopher Waller has pivoted to a more hawkish stance. The strong retail sales data further complicates the case for rate cuts.

Market Implications:

The robust consumer spending data suggests economic resilience but reduces likelihood of near-term monetary easing. Pending Home Sales data (expected +1.0% for May) is due after the opening bell, with four consecutive positive months anticipated. Equity markets may experience volatility as Warsh establishes his leadership approach during today's policy announcement and press conference.

The stronger-than-expected economic indicators create a challenging environment for rate-cut advocates and may pressure equity valuations.