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some analysts believe that if retail sales in august are too bad, the federal reserve may cut interest rates by 50 basis points this week. wall street expects retail sales to increase by 0.2% month-on-month in august, a sharp drop from 1% in july.

25 basis points, or 50 basis points? the u.s. august retail sales report to be released tonight may determine the extent of the federal reserve's interest rate cut on wednesday.

at 8:30 pm beijing time, the u.s. census bureau will release august retail data, which is the "last important data" released before the federal reserve's september interest rate decision. according to factset data:

wall street expects retail sales to increase 0.2% month-on-month in august, a sharp drop from 1% in july;

excluding automobiles and gasoline, retail sales are expected to rise 0.5% month-on-month, slightly higher than 0.4% in the previous month.

concerns are growing that even excluding auto and gasoline sales, core retail sales will remain weak after the july retail sales report showed pressure on other sectors, especially dining out, and last week's cpi report showed that prices for dining out increased by just 0.3% month-on-month in august, slightly higher than 0.2% in july.

in addition, the federal reserve's latest beige book pointed out that consumer spending fell in august, and many retailers, especially those targeting lower-income consumers, have warned that americans are very cautious and picky about what they buy and where they buy.

if the retail data is too bad, is there hope for a 50 basis point rate cut?

in a recent report, citi analyst andrew hollenhorst favored the fed to take a more cautious approach and cut interest rates by 25 basis points. but he noted that this is a difficult decision that depends on the dynamics of the federal reserve's monetary policy committee (fomc) and the strength of tonight's retail sales report.

hollenhorst believes that the u.s. non-farm unemployment rate fell as expected in august, and if the retail data exceeds expectations, it will show that both consumers and the labor market remain resilient, paving the way for a more moderate rate cut. however, if the results are far below expectations, the fed may be concerned that the weak labor market is dragging down consumer spending, which could lead to a more substantial rate cut.

louis navellier, founder and chief investment officer of money management firm navellier, agrees.

in theory, if the august retail sales report is terrible, the federal reserve could cut its benchmark interest rate by 50 basis points on wednesday.

it concerns future economic forecasts, interest rate paths...

the retail sales report may have an impact beyond the september rate cut. the view it contains about the u.s. consumer will also be incorporated into the fed's quarterly summary of economic projections, which contains the central bank's latest forecasts for the u.s. economy, inflation and near-term interest rates.

hollenhorst believes that the neutral interest rate level at the end of 2024 should show "at least" a 75 basis point rate cut, or a 25 basis point rate cut at each meeting before the end of the year. but if the job market or consumer spending data deteriorates much faster than the market imagines, the fed may leave room for further rate cuts.

notably, with retail sales flat in june, the surge in july and the expected increase in consumer spending in august will indicate whether consumers are willing to continue spending during the all-important holiday shopping season.

the situation is not optimistic. last week, the holiday retail forecast released by consulting firm deloitte estimated that holiday retail sales in 2024 will grow by 2.3% to 3.3% between november and january next year, reaching us$1.58 trillion to us$1.59 trillion, which may be a lower growth rate than the 4.3% in the same period last year.