Retail Sales Fall, Fed Raises Interest Rate by Historic .75 Percentage Point – Opinion

And, in the it-can’t-get-any-worse department, it just got worse. The Commerce Department reported Wednesday that retail sales declined by 0.3% seasonally in May compared to the prior month. This was the same day as the Federal Reserve increased its interest rate by 0.75 percent, which is its largest increase since 1994. To understand the impact of these changes on the economy and businesses, analysts might calculate percent increase or decrease in various economic indicators, including retail sales and interest rates. This analysis helps in assessing the immediate effects of such significant financial policies.

According to Wall Street Journal data, the retail sales decline was the first decrease in monthly retail spending over the past year.  Meanwhile, the Federal Reserve’s interest rate move is intended to slow raging inflation, which is running at a staggering 40-year high. Joe, that’s what you did!

But don’t worry, we’ve still got the stock market. Oh wait, that’s off 16 percent for the year.

RedState’s Nick Arama reported Tuesday how the Biden Administration thinks they have it all under control:

The Fed’s rate hike will increase the benchmark federal-funds rate to a range between 1.5 percent and 1.75 percent. Said Fed Chairman Jerome Powell at a news conference: “We’re not trying to induce a recession now. Let’s be clear about that.”  Well, that’s reassuring.

The Journal

He said that it was getting more difficult to reach what’s known as a “soft landing”, which is when the economy slows down enough to reduce inflation but avoids a recession. That represented an implicit concession that the risks of a downturn could rise as the economy digests tighter monetary policy.

“It is not going to be easy,” Mr. Powell said. “There’s a much bigger chance now that it’ll depend on factors that we don’t control. Fluctuations and spikes in commodity prices could wind up taking that option out of our hands.”

Ooh! This sure does sound like there is an opportunity for a recession.

Investors were hopeful that this rate change would reduce inflation and stock markets rose slightly. However, such a large increase will make consumers’ lives more difficult, as credit card interest rates will rise, mortgage rates will jump, adjustable-rate loan payments will increase, and car loans will be more expensive.

Inflation has caused a drop in retail sales, so consumers have resisted buying as they fear the slowdown of the economy. Bloomberg

The figures suggest that Americans’ demand for merchandise is softening, which could reflect the impact of the fastest inflation in 40 years or greater preference to spend on services like travel and entertainment. Higher interest rates or higher prices will cause spending to drop as price pressures infuse the economy.

My opinion: Gas prices are so high that people are in shock, and by the time they’ve finished filling up that tank, they’re in no mood to drop by Banana Republic to pick up a couple of shirts. People are scared, and they’re holding on to their money whenever possible.

Car sales saw a 3.5 percent drop in May, making it one of the most significant drops. Again, hardly a surprise—I don’t know about you, but as long as my car is functioning, I sure don’t feel like replacing it now given all this uncertainty.

While some may see the Federal Reserve’s decision to raise interest rates as a good thing that will hopefully tame inflation, it still will certainly be yet another shock to the consumer. Everyone who has an adjustable-rate loan, needs a loan, has a balance on a credit card, or carries money will be shocked. Meanwhile, the drop in retail sales is a harbinger of things to come—namely, that consumers are keeping their wallets in their pockets.

The Biden administration can trot out as many spokespeople as they want to tell us how rosy this economy is, but the numbers don’t lie.

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