Economics

For the week of June 16^th, 2025

U.S. Fed to holds rates as Canada’s retail sales show resilience amid tariffs

The U.S. Federal Reserve is widely expected to forego an interest rate cut again on Wednesday. The central bank has been on pause since December after cutting the fed funds rate by 100 basis points in the second half of 2024. 

Policymakers will likely maintain a cautious approach given high levels of uncertainty about the impact of the ongoing trade war on growth and inflation. U.S. labour markets have shown signs of gradual cooling this year, and inflation surprised to the downside in April and May.

We continue to expect the Fed will ultimately cut interest rates later this year (starting in September), but for now remains in a wait and see mode—assessing the risk that elevated tariffs could eventually weigh more heavily on growth, but also push inflation higher.

In Canada, Friday’s April retail sales will be closely watched for further signs that consumer spending is outperforming a sharp pullback in consumer confidence surveys this spring. Statistics Canada’s advance retail indicator for April showed pre-tax sales rose by 0.5%, building on a solid 0.8% gain in March. Those gains have been consistent with our RBC Canadian cardholder spending tracker, pointing to further strength in May.

Auto sales pulled back in April and May, but only partially reversed a jump in March (by our count) when buyers rushed to purchase cars ahead of threatened auto tariffs. Core retail sales, which exclude volatile components like gasoline and auto spending, remained relatively resilient in both months, according to our estimates, further hinting at underlying strength in consumer demand.

But, even with these encouraging near term trends, we expect household consumption to slow during the second half of the year. Despite the de-escalation of tariff rhetoric over the past month, persistent uncertainty continues to weigh on consumer confidence, which remains near historic lows even with May’s marginal rebound.

Moving forward, we anticipate consumers will likely remain cautious about big-ticket purchases, such as autos and homes, as ongoing uncertainty about tariff policies continue to dampen buyer sentiment.

Week ahead data watch:

• We expect May Canadian housing starts to pull back to 243,000-a 12.8% decline that would partially retrace a 30% surge in April.

• U.S. retail sales likely fell by 1% in May following strong performance in April and a small uptick in March. Unit auto sales dropped another 9% in May on top of a 3% decline in the previous month, while lower-priced gas station sales further slowed headline sales. Meanwhile, control group sales likely inched up by 0.1%, insufficient to offset the 0.2% decline observed in the previous month.

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