PPI, Retail Sales Should Kill September Rate Hike

A couple of new data points came out on Friday that will give the Fed pause as they consider their next steps with regard to interest rates. First, retail sales came in basically flat for the month of July as opposed to a forecast rise of 0.4%. This was especially surprising considering the strong growth in employment this year and the accompanying increase in hourly wages. The question for the Fed is whether this is just a blip in the data like the disappointing May unemployment report or whether it really does signal a trend. Perhaps more disappointing was the Producer Price Index (PPI) which suffered its biggest drop since December of last year, falling 0.4% for the month of July. With this drop, the PPI has actually fallen 0.2% in the last twelve months. Both of these numbers indicate that deflation, rather than inflation, continues to be the more persistent problem in the economy and, despite it efforts, the Fed is still having a difficult time pushing inflation up to its desired 2 percent target. This should prevent the ever-present hawks on the Fed from pushing through a rate hike anytime soon as the doves will have the upper hand with this new data. A September rate hike seems totally out of the question at this point.