Solid U.S. Consumption...Fed Likely to Slow Rate Cuts

November Retail Sales Up 0.7% MoM

Possibility of Holding After 0.25% Cut

In November, U.S. retail sales exceeded market expectations. As the U.S. economy continues to boom, the pace of the Federal Reserve's (Fed) interest rate cuts is expected to slow.

Solid U.S. Consumption...Fed Likely to Slow Rate Cuts

According to the U.S. Department of Commerce on the 17th, U.S. retail sales in November increased by 0.7% compared to the previous month, slightly exceeding the market forecast of 0.6%. E-commerce sales, among others, strongly supported retail sales. Bloomberg reported, "Consumers increased spending at discounted prices during last month's shopping season, including Black Friday," and analyzed, "Income growth has maintained the resilience of retail sales." It further explained, "Some consumers purchased high-priced items in advance due to concerns that product prices could rise further with the tariff policies announced by President Donald Trump."

Experts believe that at the Federal Open Market Committee (FOMC) scheduled for the 18th (local time), the Fed will cut the base rate by 0.25 percentage points but signal a hold. This is the so-called 'hawkish cut.' The judgment is that inflation concerns are high due to the booming economy and the tariff policies that the second Trump administration, which will launch in a month, will implement. Barron's stated, "At this month's FOMC meeting, Fed Chairman Jerome Powell will issue (hawkish) forward guidance along with a rate cut."

As of last September, the Fed's dot plot showed interest rate projections of 4.4% by the end of this year and 3.4% by the end of next year. Assuming a 0.25 percentage point cut each time, it is expected to cut rates four times next year. In this regard, ING judged, "The number of rate cuts next year will be limited to three."

Recently, Fed members have been warning against excessive rate cuts. This is based on the judgment that inflation has slowed and concerns about employment collapse have disappeared.

Kim Eun-jung, kej@hankyung.com