Stocks fell Friday after a stronger-than-expected retail sales report suggested the U.S. economy remains robust, potentially reducing the need for further interest rate cuts.
Adding to market uncertainty, Boston Federal Reserve President Susan Collins cautioned that it was too early to determine whether the central bank should lower rates at its December meeting. “Another rate cut in December is certainly on the table, but it’s not a done deal,” Collins said in an interview Thursday, noting that additional economic data will be crucial to the decision.
All three major U.S. indexes closed in the red. The Nasdaq Composite posted its fourth consecutive daily loss, dropping over 3% for the week. The S&P 500 and Dow Jones Industrial Average also fell, shedding more than 2% and 1% for the week, respectively.
The losses mark a sharp reversal from the rally earlier this month, when stocks surged to new highs after Donald Trump’s presidential victory and a Federal Reserve rate cut. However, the current downturn reflects investor doubts over whether the Fed will continue to reduce rates as anticipated, given the economy’s resilience.
On Friday, the Commerce Department reported a 0.4% rise in October retail sales, surpassing economists’ expectations of 0.3%. September’s sales figures were also revised sharply upward to 0.8% from an initial estimate of 0.4%.
“Fed officials are increasingly concerned that disinflationary forces are fading,” wrote Jefferies analyst Thomas Simons. However, he added that sufficient evidence to confirm such concerns is unlikely to emerge before the Fed’s next meeting on December 17-18, where officials will consider new inflation and employment data.
Collins echoed recent remarks by Fed Chair Jerome Powell, suggesting that recent inflation increases are primarily a reflection of earlier price shocks rather than new economic pressures. She pointed to factors like higher car insurance costs, which are catching up with prior rises in vehicle prices. “I do not see evidence of new price pressures,” Collins said, attributing firmer inflation to “longer-term dynamics of past shocks.”
The Fed has already cut rates twice this year, including a half-point reduction in September amid signs of labor market softening and a quarter-point cut last week, bringing its benchmark rate to a range of 4.5%-4.75%. Collins, who will serve as a voting member of the Fed’s rate-setting committee next year, supported both moves, noting the importance of cautious policy adjustments moving forward.
Market expectations for a December rate cut have fluctuated, rising to 80% earlier this week after a benign October inflation report but falling back to 60% following Powell’s comments on the economy’s “stout” performance.
Collins advocated for reducing rates to a neutral stance that neither stimulates nor restricts economic activity, emphasizing that current policy remains restrictive. “I don’t see a case for maintaining restrictive policy when there’s no evidence of new price pressures and past shocks are gradually resolving,” she said.
