Weak US retail sales, consumer prices put spotlight on Fed

Washington

US retail sales in May recorded their biggest drop in 16 months and consumer prices unexpectedly fell, suggesting a softening in domestic demand that could limit the Federal Reserve's ability to continue raising interest rates this year.

The Fed is expected to increase borrowing costs later on Wednesday, but the signs of moderate consumer spending and retreating inflation pressures could worry policymakers who have previously viewed the softness as transitory. "It won't stop the Fed from hiking interest rates later today, but it increases the downside risks to our forecast that there will be a further two rate hikes in the second half of this year," said Paul Ashworth, chief US economist at Capital Economics in Toronto.