Consumer Spending Drops in January
U.S. retail sales declined 0.9% in January, signaling potential economic slowdown, following a strong December increase. Key spending categories, including online shopping, auto sales, and sporting goods, saw notable declines, while gas stations and restaurants experienced slight gains. The drop in consumer spending, which drives two-thirds of economic activity, led traders to increase bets on a possible Federal Reserve rate cut by June. Despite concerns, analysts suggest the decline may be temporary, influenced by weather conditions and December’s inflated auto sales.
Inflation Rises, Delaying Fed Rate Cut
Inflation accelerated more than expected in January, with the consumer price index rising 0.5% for the month and 3% year-over-year, fueling concerns that the Federal Reserve will delay interest rate cuts. Markets reacted negatively, with stocks falling and bond yields rising, as traders pushed expectations for the next rate cut to at least September. Shelter costs remained the primary driver of inflation, while food prices surged, particularly eggs, which saw a 15.2% spike due to avian flu. Despite mounting pressure from President Trump for lower rates, Fed Chair Jerome Powell signaled a cautious approach, emphasizing the need for more data before making policy changes.
Trump Unveils Plan for Reciprocal Tariffs
President Trump signed a memorandum outlining his plan to impose reciprocal tariffs on countries with higher taxes or trade barriers on U.S. goods. The tariffs, which will be studied by Commerce Secretary nominee Howard Lutnick, aim to address perceived unfair trade practices, with final recommendations expected by April 1. Trump signaled that additional tariffs, including on auto imports, may follow, despite warnings from EU leaders about potential trade wars. The policy builds on existing tariffs imposed on China, Canada, and Mexico, with enforcement paused for the latter two amid border security agreements.
