US consumption accounts for nearly 30% of global consumption, while the US has 4.2% of the world’s population. Consumption growth in 2025 was strong, but data from 4Q25 points to a slowdown.
Retail sales momentum softened in 4Q25. Real-time GDP estimates were also downgraded, reflecting weaker near-term demand.
Us Consumption Showing Signs Of Cooling
Household fundamentals are described as remaining solid. The consumption trend is framed as not raising concern when viewed in context.
Two Federal Reserve rate cuts of 25bp each are projected for 2H26, with one expected in 3Q and one in 4Q. Inflation is expected to remain above target during this period.
The article was created with the help of an Artificial Intelligence tool and reviewed by an editor.
We are seeing signs that the US consumption powerhouse is cooling after a very strong 2025. The softer retail sales momentum we observed in the last quarter of 2025 appears to be continuing, with January 2026 retail sales data coming in at a modest 0.2% rise, just below consensus forecasts. This suggests traders should watch consumer-focused assets closely.
Positioning For Rates Volatility And Fed Timing
Given this trend, we are considering put options on consumer discretionary ETFs, which are sensitive to spending pullbacks. At the same time, we might look at call options on consumer staples, as households will still spend on necessities even if they cut back elsewhere. This creates a potential pair trade for the coming months as the slowdown story unfolds.
The expectation of two Federal Reserve rate cuts in the second half of this year is the most critical factor for the rates market. This forecast for easing, even with inflation above target, signals a dovish pivot is on the horizon. Looking back to the market action in late 2018, we saw how bond prices rallied months before the Fed actually started cutting rates in 2019.
This leads us to look at derivatives that bet on lower interest rates later this year. We believe positioning through long-dated call options on Treasury bond ETFs is a good way to gain exposure to falling yields. Additionally, looking at SOFR futures contracts for the third and fourth quarters could allow for a direct play on the timing of these anticipated rate cuts.
The uncertainty between slowing growth and the Fed’s patient stance could increase market choppiness. With the VIX index currently trading near a relatively low level of 16, buying volatility may be an inexpensive hedge against a sharp market move. We could use VIX call options or S&P 500 index straddles to position for a potential spike in volatility as we move closer to the Fed’s mid-year meetings.
