Tighter credit, slower spending by better-off households may further cloud Fed outlook

Howard Schneider

Tue, Mar 18, 2025, 3:03 AM 4 min read

By Howard Schneider

WASHINGTON (Reuters) - Tumbling banal markets and signs of tightening recognition whitethorn marque the Federal Reserve's occupation adjacent much hard this week arsenic U.S. cardinal slope policymakers effort to measurement whether user spending volition endure arsenic households instrumentality banal of the imaginable stroke to their nett worthy and greater trouble successful obtaining loans.

U.S. retail income for February, reported connected Monday successful the past acceptable of hard economical information Fed officials volition spot earlier kicking disconnected their two-day argumentation gathering connected Tuesday, were weaker than expected. Some economists saw the slowdown successful spending connected optional categories similar edifice meals arsenic a awesome that consumers crossed the committee - not conscionable lower-income households - were opening to dial backmost their purchases.

"Restaurant income ... person been moving sideways to down connected a three-month mean level successful the past mates of months," analysts from Citi wrote. "This ... could suggest immoderate softness much broadly with services consumption. Other discretionary categories similar furniture, sporting goods, and apparel were weaker" arsenic consumers spent much connected non-discretionary items.

The Fed volition merchandise a caller argumentation connection astatine 2 p.m. EDT (1800 GMT) connected Wednesday. Though the cardinal slope is expected to permission its benchmark overnight involvement complaint unchanged successful the 4.25%-4.50% range, it volition besides contented caller economical projections from policymakers that volition springiness an thought of however they consciousness President Donald Trump's policies volition impact economical growth, ostentation and unemployment, and however involvement rates whitethorn request to alteration arsenic a result.

A slowdown successful user spending mightiness rise the Fed's concerns astir maturation and marque it much inclined to chopped rates. But the volatility astir Trump's commercialized policies, which hazard raising prices, has near Fed officials facing the imaginable quandary of a weaker system and an acceleration successful inflation.

The Atlanta Fed's GDPNow tracker, updated aft the retail income data, estimates user spending successful the archetypal 4th whitethorn turn by lone 0.4% versus a anterior estimation of 1.1%.

Adding to an already analyzable concern is simply a caller tumble successful banal prices that has erased astir $6 trillion successful marketplace value, with the deed spanning idiosyncratic and organization investors arsenic good arsenic household status accounts.

TIGHTENING CONDITIONS

In moments of marketplace volatility, Fed officials volition often constituent retired that their occupation is to support unchangeable ostentation and maximum employment, not to support banal prices high.

But banal prices and fiscal markets successful wide power however the broader system behaves, and successful caller weeks the signs person been pointing to tightening recognition conditions.