The Federal Reserve on Tuesday decided to keep interest rates unchanged, the same day a new report showed retail sales increased in July.

Sounding a note of caution about the economy, the Federal Open Market Committee voted unanimously to keep the federal funds rate at a four-decade low of 1.75%, saying the economy is a risk of “conditions that may generate economic weakness.”
With the recent weakness in financial markets and problems with corporate reporting, policy makers said this has softened economic growth. However, they noted current monetary policy “coupled with still-robust underlying growth in productivity, should be sufficient to foster an improving business climate over time.”
It’s believed with this cautious tone, the Fed is leaving the door open to cutting interest rates later this year if economic conditions worsen.
Tuesday’s announcement came just a few hours after the U.S. Commerce Department reported a 1.2% rise in retail sales following an upwardly revised 1.4% increase in July. Sales of automobiles posted a 4.2% jump for both months.
The third quarter begins with retail sales 1.8% above the second quarter average, says Newport Communications Senior Economist Jim Haughey.
“A drop back in car sales is likely before the end of the summer quarter because inventories have again become lean," Haughey says. "But other retail sales are expected to continue rising at about a 0.2% monthly pace over the next few months.”
Excluding sales of automobiles, retail sales were up just 0.2% for July with sales at drug stores and gasoline stations being about the only other areas that posted much of an increase.