25 basis points or 50 basis points? The US retail report for August, which will be announced tonight, may determine the extent of the Fed's interest rate cut this week.

At 8:30 pm Beijing time, the US Census Bureau will release the August retail data, which is the 'last important data' released before the Fed's interest rate decision in September. According to market consensus:

It is expected that the month-on-month retail sales in the United States will fall by 0.2% in August, a significant drop of 1% from July.

It is expected that the month-on-month core retail sales in August will increase by 0.2%, with July at 0.4%.

People are increasingly concerned that even after excluding auto and gasoline sales, core retail data will still be weak. The previously released July retail report shows that other sectors, especially dining out, are under pressure. The CPI report released last week showed that dining out prices in August only increased by 0.3% month-on-month, slightly higher than July's 0.2%.

In addition, the latest Beige Book from the Fed points out that consumer spending in August has decreased. Many retailers, especially those targeting low-income consumers, have warned that Americans are very cautious and picky when buying goods and choosing locations.

If the retail data is too bad, is there a chance for a 50 basis point interest rate cut?

In the recent released report, Citigroup analyst Andrew Hollenhorst tends to believe that the Federal Reserve may take more cautious measures and cut interest rates by 25 basis points. However, he points out that this is a difficult decision, depending on the dynamic of the Federal Open Market Committee (FOMC) and the strength of tonight's retail sales report.

Hollenhorst believes that the US August non-farm unemployment rate fell as expected. If the retail data exceeds expectations, it will indicate that consumers and the labor market are both resilient, paving the way for a more moderate rate cut. However, if the results are far below expectations, the Fed may be concerned that a weak labor market is dragging down consumer spending, which could lead to a larger rate cut.

Louis Navellier, the founder and chief investment officer of money management firm Navellier, agrees with this.

In theory, if the August retail sales report is very poor, the Federal Reserve may cut the benchmark interest rate by 50 basis points on Wednesday.

It concerns future economic forecasts and interest rate paths...

The impact of the retail report may not be limited to the September rate cut. The views on US consumers contained in the report will also be included in the Federal Reserve's quarterly updated economic projections summary, which includes the latest forecasts for the US economy, inflation, and short-term interest rates.

Hollenhorst believes that by the end of 2024, the neutral interest rate level should show a decrease of at least 75 basis points, which means a rate cut of 25 basis points at each meeting by the end of the year. However, if the labor market or consumer spending data deteriorates at a pace much faster than the market imagines, the Fed may have room for further rate cuts.

It is worth noting that the flat retail sales in June, the surge in July, and the expected increase in August consumer spending will indicate whether consumers are willing to continue spending during the crucial holiday shopping season.

The situation is not optimistic. Last week, consulting firm Deloitte released a holiday retail forecast estimating that the holiday retail sales in 2024 will increase by 2.3% to 3.3% from November to January next year, reaching 1.58 trillion to 1.59 trillion dollars, with a growth rate lower than the 4.3% of the same period last year.

Editor/Somer