If the Federal Reserve follows through on strong hints that it will be cutting interest rates in late July, it will do so in the face of a powerful consumer, a record-breaking stock market and an increasingly difficult case to make for easier monetary policy. Justifying a policy easing against that kind of a backdrop might be tricky for the Fed, even though markets fully expect a cut this month plus perhaps two more before the end of the year. The central bank is not normally in the business of easing into an economy that is showing few signs of a recession, generally holding fire until more pronounced signs of a slowdown are in view. But this is not a normal time in the world of monetary policy, and the Fed is likely to follow though despite the solid economic signals. "It just doesn't smell right given the strength of the economic data," said Chris Rupkey, chief financial economist at MUFG Union Bank. "The consumer is back in a big way. You really have to ask yourself why they are going to cut rates." Indeed, the latest data points to solid consumers, who accounted for 67.4% of economic activity in the first quarter. Retail sales rose 0.4% in June, according to Commerce Department figures that easily topped the 0.1% expected gain. On a year-over-year basis, sales increased 3.4%.

"This really takes the cake in terms of just how strong the consumer is," Rupkey said. "The Fed has their story and they're sticking to it. So despite the data, despite the strong jobs numbers, they believe this is an insurance cut. A risk management cut is necessary for two factors: one is the slowing global economy, and No. 2 is the fact that inflation has been below the 2% target for so long. Given those two factors, I expect them to go. If not, you're going to hear a whole lot of ruckus out of the White House." Fed Chairman Jerome Powell, in a speech Tuesday, outlined a laundry list of factors concerning officials. Along with the usual suspects — the slowing global economy and the back-and-forth trade battle between the U.S. and China — he also cited debt ceiling negotiations in Congress, a potentially messy Brexit and the Fed's nagging inability to bring inflation up to the 2% target level it feels is healthy in a growing economy.

Fed speakers pointing to cut