US Retail Sales Drop Intensifies Fed Pause Barbell Position

What happened

US retail sales fell 0.6% in July, missing forecasts by 0.7 percentage points. The probability of a September Fed rate hike dropped to 30.6% from 50.0% one month ago. Investors poured $67.66 billion into equity, bond, cash, and gold funds, with money markets leading inflows at $28.41 billion.

Why it matters

The data bolsters arguments for the Fed to hold rates steady, despite rising inflation expectations to 4.3%. Investors adopted a 'barbell' strategy balancing risk assets with liquidity and hedges, while retailers report next week to determine if the slowdown is temporary.