At the risk of stating the obvious, I don’t think the Fed was expecting August retail sales to come in quite as strong as they did. One month’s data is not going to change the forecast very much, as Bernanke’s comments at Brookings imply. Still, it is interesting to think about this in the context of the savings rate.
Most Fed officials think the savings rate will stick roughly where it is now – about 4.5 per cent. Some see a serious risk that the savings rate will move higher in the coming months; others are pretty confident it will stay about where it is now. None of them as far as I can see are expecting the savings rate to dip lower from here. If – and it is a very big if - a run of data suggested that was happening it would have a big impact on the way policymakers think about the outlook into 2010.