Real consumption boosted by plunging gasoline prices

The boost to purchasing power from the recent plunge in gasoline prices has already fed through to stronger real consumption growth. Even assuming a more modest rise in December, control group retail sales are on track for a 5% annualised gain in the fourth quarter, which should translate into a 4% annualised gain in real consumption. Nevertheless, with the earlier boost from tax cuts now fading and rising borrowing costs taking a progressively heavier toll, we still expect consumption growth to slow next year. The upshot is that, while the Fed will probably follow a rate hike this week with two more in the first half of 2019, we continue to expect that a sharp slowdown in economic growth will persuade officials to begin cutting rates again in 2020.