US retail sales rise; Fed rate increase likely

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16 Feb, 2017

US retail sales rise; Fed rate increase likely

The month of January saw US retail sales rise to higher than expected levels, increasing prospects that the Federal Reserve will raise interest rates at their next meeting in March.

Most US retailers posted relatively strong sales for the first month of 2017. A sign that higher consumer confidence since the US election has encouraged people to spend more, in turn boosting overall economic growth prospects for the US in 2017.

In January 2017, retail sales rose 0.4%. Purchases of electronics and appliances were a factor in the rise, whereas households also spent more on dining out, sporting goods and general hobbies. Compared to January last year, retail sales were up by 5.6%.

Furthermore, the economy's outlook for the year was also buoyed on by other data released on Wednesday that showed a rise in manufacturing and mining production last month, as the drag from lower oil prices fades.

The figures come not soon after Fed chair Janet Yellen hinted that a strengthening US labour market, along with rising inflation, may mean that the central bank will need to raise rates at one of its upcoming meetings in March. The latest figures of retail sales serve to reinforce that view of an imminent hike in interest rates.

As reported on Reuters, despite January's strong inflation and retail sales reports, many economists and analysts only expect two rate hikes for this year. This is one rate hike short of the three predicted by the US Federal Reserve back in December.

Some analysts remain sceptical of a rate hike in March thinking it to be still too early. Economist at JPMorgan, Michael Feroli said in New York: "Recent rhetoric from Fed officials has turned marginally more hawkish lately. We still think March is too early for them to hike, particularly given their propensity to prepare markets for a move".

He added: "We continue to look for two hikes this year".

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