US retail sales are anticipated to rise by 0.6% month-over-month, with a boost from auto sales and increasing prices. Excluding auto sales, the growth is forecast to be 0.3%, due to reduced discretionary spending amid a cooling job market and price pressure concerns from tariffs.
Market alignment with these expectations might support a 25 basis point rate cut in September. BofA predicts a 0.6% rise in the retail sales control group, translating to a 0.4% increase in real terms, using CPI core goods data as a gauge.
Deutsche Bank Projections
Deutsche Bank forecasts robust unit motor vehicle sales in July, predicting a 1.2% increase in headline retail sales, contrasting with the 0.6% estimate. Sales without autos are projected to rise by 0.4% instead of the expected 0.5%. The retail control group is expected to increase by 0.5%. Their projections consider a strong performance from non-store retailers, benefiting from an extended Amazon Prime Day.
The mixed signals from the latest retail sales forecasts reinforce our view that the underlying consumer is weakening, despite a strong headline number. This aligns with other recent data, like the July jobs report from early August 2025 which showed non-farm payrolls moderating to 160,000, missing consensus estimates. This scenario strengthens the case for the Federal Reserve to implement a 25 basis point interest rate cut at its September meeting.
Given this outlook, derivatives pricing will likely continue to build in the probability of a rate cut. As of this morning, August 15th, 2025, the CME FedWatch tool shows the market is pricing in an 85% chance of a cut next month, a significant jump from just under 70% a week ago. Traders should therefore consider positioning in short-term interest rate futures, like the September SOFR contracts, to capitalize on this expected policy shift.
Market Strategy Implications
This environment also favors bullish positions in longer-duration government bonds, which gain value as interest rates fall. We saw a similar dynamic play out in mid-2019, when the Fed began cutting rates as a precaution against slowing global growth, well before any recession was imminent. In that period, traders who anticipated the cuts by going long Treasury futures or buying calls on bond ETFs were rewarded.
We should, however, remain watchful for any upside surprises in spending, especially from the non-store retail sector which benefited from an extended Amazon Prime Day event in July. While the recent July core CPI reading cooled to an annual rate of 2.8%, giving the Fed ample room to ease policy, any unexpectedly hot inflation or jobs data in the coming weeks could quickly challenge the rate cut narrative. This makes options strategies that can profit from a rise in volatility a prudent consideration.
