Fed Rates and Holiday Trade
Higher US rates are raising the cost of the holiday season
The Federal Reserve raised interest rates in September, and markets now expect another increase in October. The dollar is at its highest level in two months, oil is above $100 a barrel, and US businesses report rising prices. With the holiday season ahead, this changes the cost of every shipment being financed on its way to the shelf.
The Fed raised rates and expects to raise them again
The Federal Reserve raised its main interest rate by 0.25 percentage points in September. All members voted for the increase. The Fed also said it expects at least one more increase this year.
A Fed governor said this week that inflation is still above the Fed's 2% target and is not falling fast enough. He expects the Fed will need to raise rates further. He listed four causes of higher prices over the past 18 months: tariffs, the Middle East conflict, supply disruptions in Eastern Europe, and a surge in investment in artificial intelligence.
The heads of the Richmond and Boston Federal Reserve Banks also said more increases were possible. Other Fed officials appeared to support the idea earlier in the week. A strategist at Brown Brothers Harriman said Fed officials are all signaling that more increases are coming.
US business activity hit a five-year high, and prices are rising with it
S&P Global's flash US Composite PMI, which tracks manufacturing and services, rose to 58.4 in September from 56.0 in August. That is its highest reading since July 2021.
The rise came from a surge in new orders. Strong demand also put pressure on supply chains and pushed prices higher. This matters for the Fed, because rising prices are the reason it is raising rates.
Markets reacted quickly. Before the PMI release, LSEG data put the chance of an October increase at around 53%. After it, the chance rose to about 75%. A month earlier, CME's FedWatch tool had put it at around 9%. LSEG data also shows markets fully expect one more 0.25 point increase by December, and more than three by September 2027.
What markets expect from the Fed
Chance of a 0.25 point increase in October, and the increases markets expect after that
earlierSep 23,
before PMISep 23,
after PMI
- October 2026Around 75% chance of another 0.25 point increase
- By December 2026One more 0.25 point increase fully expected
- By September 2027More than three 0.25 point increases expected
The dollar rose to its highest level in two months
The DXY index tracks the dollar against a group of major currencies. On September 23 it rose 0.54% to 101.09, after touching 101.1, its highest level since July 29. The euro fell 0.52% to $1.1386, on track for its third daily fall in a row. The pound fell to $1.3260, its lowest in 12 weeks. Both fell because the gap between US interest rates and European and UK rates has moved in the dollar's favor.
The dollar also rose against Asian currencies. It gained 0.20% to 6.712 offshore Chinese yuan. The Japanese yen fell 0.6% to 158.32 per dollar.
Oil added to the move. Brent crude rose back above $100 a barrel. Iranian officials said the Strait of Hormuz would stay closed until Iran's conditions are met. Oil prices had eased from a four-month high in mid-September on hopes of progress in talks at the UN General Assembly. That fall reversed this week.
Two banks expect the dollar to stay strong. Standard Chartered said the dollar strength it has long forecast may have arrived. HSBC expects the dollar to rise against the pound, because of risks to UK government finances ahead of the October budget.
Dollar and oil, September 23, 2026
The dollar against major currencies, and the Brent oil price
DXY
EUR/USD
GBP/USD
USD/CNH
USD/JPYUS shoppers are still spending, but they want value
US retail sales rose 1.2% in August to $773.9 billion, according to the Commerce Department. In July, sales fell 0.5%. Economists surveyed by The Wall Street Journal had expected a rise of 0.8%.
Part of the rise came from high gasoline prices, because the figures count dollars spent, not items bought. Spending also rose in other areas. Sales at nonstore retailers, which include online sellers, rose 2.6%. Sales at electronics and appliance stores rose 1.6%. The "control group," the part of retail sales used to calculate GDP, rose about 1.4%.
Two forecasts point to a record holiday season. Deloitte expects holiday retail sales of $1.70 trillion to $1.71 trillion from November 2026 to January 2027, up 4.0% to 4.8% on the same period a year earlier. Bain expects November and December sales to top $1 trillion for the first time, up 4.5%.
Much of that growth reflects higher prices. Bain expects more than half of the rise in sales to come from inflation, not from people buying more. Deloitte expects shoppers to look hard for value, switching brands and stores and using promotions to manage their spending.
US retail sales, month-over-month change
August 2026 by category, against July and the consensus forecast
Holiday sales forecasts, 2026
The two forecasts cover different periods, so compare them with care
- Growth: 4.0% to 4.8% on a year earlier
- Online sales: $316.1B to $318.9B, up 7.5% to 8.4%
- Shoppers switching brands and stores, and using promotions
- Growth: 4.5% on a year earlier, including price rises
- More than half of that growth from higher prices
- First season above $1 trillion
What this means for supply chain finance
Holiday stock is bought and shipped months before it is sold, and most of it is financed along the way. Every change above lands on that financing. We expect it to play out in three steps.
Goods cost more to make, move and finance
- US businesses report rising prices as demand puts pressure on supply chains.
- Oil above $100 a barrel raises fuel costs for shipping and transport.
- Higher interest rates raise the cost of financing stock before it reaches the shelf.
Suppliers cut margins to clear stock
- Shoppers are looking for value and waiting for promotions.
- To sell holiday stock on time, suppliers and retailers are likely to discount.
- Each discount comes out of their margin, while financing costs stay high.
Prices rise further in 2027
- Suppliers will restock for 2027 with thinner margins and higher financing costs.
- Markets expect more than three rate increases by September 2027.
- To rebuild margins, suppliers are likely to pass these costs into 2027 prices.
Steps 2 and 3 are Ossiano's outlook, based on the data in this article. They are not a forecast from the sources cited.
Three points for anyone financing holiday trade
Stock bought now will be financed through two Fed meetings
Dollar trade finance is often priced as a margin over a floating interest rate. Stock bought in September and sold in January will be financed through the October and December decisions.
Pricing based on today's rate will be too low if those increases happen.
Suppliers will want to be paid sooner
When suppliers discount to clear stock, they keep less cash from each sale. At the same time, holding stock costs more.
We expect more suppliers to ask for early payment on their invoices through the season.
A strong dollar helps US importers and costs everyone else
With the dollar stronger against the yuan and the yen, US importers pay fewer dollars for goods priced in those currencies.
European and UK buyers paying dollar invoices need more euros or pounds for the same bill.
The holiday season will cost more to finance
The Fed raised rates in September and expects to raise them again. Markets now see about a 75% chance of another increase in October. The dollar is at its highest level in two months, and oil is back above $100 a barrel.
Shoppers are still spending, but more of that spending reflects higher prices, and they are looking for deals. Suppliers face higher costs going into the season and pressure to discount coming out of it. We expect that to show up in higher prices in 2027.
The next dates to watch are the Fed's October meeting and the UK budget in October.
For questions on how these shifts affect existing or planned trade finance exposures, contact the Ossiano Research Desk.
Sources
- The Wall Street Journal, "Fed's Barr Says More Rate Hikes Likely Needed to Return Inflation to Target" and "Dollar Jumps to 8-Week High on Fed Rate-Hike Bets," September 23, 2026; "U.S. Retail Sales Rebound in Show of Consumer Strength," September 16, 2026.
- Reuters, "Dollar jumps near 2-month high on Fed outlook, rising oil price," September 23, 2026.
- Deloitte, "Deloitte Forecasts Holiday Retail Sales to Reach $1.70 Trillion to $1.71 Trillion," September 10, 2026. deloitte.com/us/en/about/press-room/deloitte-forecasts-holiday-retail-sales.html
- Bain & Company, "US holiday retail sales set to outpace last year's seasonal growth performance to exceed $1 trillion for the first time," September 3, 2026. bain.com/about/media-center/press-releases/2026/us-holiday-retail-sales-set-to-outpace-last-years-seasonal-growth-performance-to-exceed-$1-trillion-for-the-first-timebain--company-forecasts/
- S&P Global, flash US Composite PMI, September 2026, via Reuters.
- CME Group FedWatch, October rate-increase probabilities, via The Wall Street Journal.
- LSEG, October, December 2026 and September 2027 rate expectations, via Reuters and The Wall Street Journal.
- US Department of Commerce, monthly retail sales, August 2026.
