If you hear someone saying, “It can’t get any worse,” well it can and it just did. The Commerce Department said on Wednesday, “Retail sales fell a seasonally adjusted 0.3% in May from the previous month.” That is on the same day the Federal Reserve raised its interest rate by .75%, its biggest rise since 1994, a 28-year time period.
According to the Wall Street Journal, the retail sales drop was the first decline in month-over-month retail spending this year. And, the Federal Reserve’s interest rate move is intended to slow raging inflation, which is running at a staggering 40-year high.
And, to top those two things, the stock market is off 16% for the year. Just remember you did that Joe Biden!
RedState’s Nick Arama reported on Tuesday how the Biden Administration thinks they have it all under control:
Fed Chairman Jerome Powell said, “The Fed’s rate hike will increase the benchmark federal-funds rate to a range between 1.5% and 1.75%. We’re not trying to induce a recession now. Let’s be clear about that.”
The Wall Street Journal also reported Powell said, “It was becoming more difficult to achieve what is known as a soft landing, in which the economy slows enough to bring down inflation while avoiding a recession. That represented an implicit concession that the risks of a downturn could rise as the economy digests tighter monetary policy.
Powell concluded, “It is not going to be easy. 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.”
Isn’t that reassuring. That sure sounds like recession is a distinct possibility.
Stock markets rose slightly, after the rate announcement, with investors hopeful that the move will put a dent in inflation. 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.
The retail sales drop indicates a slowing of the economy as consumers hold back on purchases because inflation has eaten into their budgets.
Bloomberg news reported, “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. As price pressures become more entrenched in the economy, spending will likely ebb either due to higher prices, higher interest rates, or both.”
Gas prices are so high, and rising almost daily, that people are in shock, and by the time they’ve finished filling up their tank, they’re in no mood to go shopping. People are scared, and they’re holding on to their money whenever possible.
One of the biggest drops has been in cars sales, which fell 3.5% in May, and really not surprising. Most Americans are being cautious and as long as their vehicle is functioning, aren’t trading or buying given all this uncertainty.
Whie some may see the Federal Reserve’s decision to raise interest rates as a good thing that will hopefully tame inflation. This interest rate rise will certainly be yet another shock to the consumer. Anyone who needs a loan, carries a credit card balance, or has an adjustable-rate loan is about to be in for a nasty surprise. And in the meantime, 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 lying spokespeople as they want to tell us how rosy this economy is, but the numbers don’t lie.