While November retail sales gain of 0.7% beat expectations of 0.6%, sales excluding auto and gas came in well below consensus: 0.2% versus 0.4%. Markets are pricing in a 97% chance of a 25 bps rate cut tomorrow, but skeptics (like us) make a great argument that loose financial conditions and recent inflation increases suggest that the FOMC take a pause.
And, although Trump isn’t in the White House just yet, it seems likely that coming tariffs will combine with even looser financial conditions to boost inflation even more. Our inflation model indicates that December CPI (out Jan 15) will mark the 4th increase in a row: approaching 3% from the low of 2.44% in Sep.
Don’t look now, but the 10Y has reached our 4.4% target and is positioned for a potential breakout.
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