Retail Sales, Imports Come In Warm Ahead of FOMC Decision

• August retail sales reached the second-highest level of 2026 at 1.2%, with ex-auto and gas sales at 1.4%, triple the 0.4% estimate and the strongest in nearly three years
• Import prices climbed to a four-year high of 7.0% year-over-year, outpacing export price growth of 8.6%, indicating a widening cost gap driven by global tariffs and oil prices
• Fed Chair Kevin Warsh faces his first major policy test with consensus favoring a rate hike, though concerns remain about supply shocks from the seven-month Iran war pushing oil to record highs

Market Summary: Retail Sales and Imports Exceed Expectations Ahead of Fed Decision

Key Economic Data:

U.S. retail sales for August surged 1.2%, significantly above the 0.8% consensus estimate, marking the second-highest reading of 2026 behind March's 1.7%. Core metrics showed even stronger performance:

• Ex-autos: +1.4% (more than double expectations)
• Ex-autos and gasoline: +1.2% (triple the 0.4% forecast and strongest in nearly three years)

Import prices rose 0.7% versus 0.4% expected, rebounding from the prior month's -0.3%. Year-over-year imports reached a four-year high of 7.0%, up 90 basis points from July's revised 6.1%. Export prices matched forecasts at 0.6% month-over-month but rose 8.6% year-over-year.

Market Implications:

The robust retail sales data demonstrates continued consumer strength despite elevated gas prices and housing market challenges, supported by near-4% unemployment. However, the import-export gap raises concerns, as import costs are rising faster than export revenues—likely driven by global tariffs and elevated oil prices.

FOMC Decision:

Markets are pricing in over 90% odds of a 25-basis-point rate hike at today's 2:00 PM ET Federal Open Market Committee meeting. This marks Fed Chair Kevin Warsh's first major test since taking office. While headline CPI remains relatively stable, Minneapolis Fed President Neel Kashkari warns that prolonged supply shocks from the seven-month Iran conflict could lead to "entrenched inflation," particularly affecting diesel-dependent goods delivery.

The decision date is September 16, 2026, with current rates at 3.50-3.75%.