US stocks closed lower on Tuesday as traders awaited the latest Federal Reserve decision. Markets are pricing in a 25 basis point rate cut as virtually certain. US August retail sales rose 0.6%, exceeding expectations.

The Dow Jones Industrial Average fell 125.18 points, or 0.27%, to 45,758.27 points; the Nasdaq declined 14.79 points, or 0.07%, to 22,333.96 points; the S&P 500 index dropped 8.49 points, or 0.13%, to 6,606.79 points.

Traders are preparing for the Federal Reserve's interest rate meeting, which begins Tuesday and will announce its decision on Wednesday. According to CME's FedWatch tool, federal funds futures reflect a 100% probability of at least a 25 basis point rate cut.

Traders will closely watch Fed Chairman Powell's subsequent press conference for any clues about the future of monetary policy.

This meeting comes ahead of the US Senate's confirmation of Trump nominee Stephen Miran to join the Federal Reserve.

Investors will also focus on economic data scheduled for Tuesday's release, including retail sales, import prices, housing market, and business inventories.

US August retail sales excluding autos rose 0.7% month-over-month, compared to an estimate of 0.4%. The forecast range from 67 economists was 0% to 0.5%.

August retail sales rose to $732 billion. August retail sales excluding auto dealers, building materials, and gas stations increased 0.7% from the previous month. The US August retail sales "control group" rose 0.7% month-over-month. The retail sales "control group" excludes food services, auto dealers, building materials, and gas station sales data.

US August import prices rose 0.3% month-over-month, compared to an estimate of a 0.2% decline. The Bureau of Labor Statistics reported that August import prices rose 0.3% month-over-month, following a 0.2% increase in the previous month. The median forecast from 28 economists was for a 0.2% month-over-month decline, with predictions ranging from a 0.7% decrease to a 0.5% increase.

August import prices remained flat year-over-year. Import prices excluding oil rose 0.2% month-over-month, unchanged from July.

Export prices rose 0.3% following a 0.3% increase in July, up 3.4% year-over-year.

**Hawkish Surprise More Likely Than Dovish**

The Federal Reserve begins its two-day policy meeting on Tuesday, with markets expecting it to announce a 25 basis point rate cut on Wednesday, potentially marking the first dovish policy decision this year following data showing weakness in the US job market. Some traders see the possibility of a 50 basis point cut.

Renowned financial journalist Nick Timiraos, known as the "Fed's mouthpiece," wrote: "This week's Fed rate cut is essentially a foregone conclusion, and investors will focus on whether Powell will further advance his recent shift in stance. Investors will closely watch one key message: whether Powell and his colleagues will set this year's total rate cuts at three, or maintain the June expectation (when the job market appeared more robust and a minority of officials expected two cuts)?"

Timiraos noted that in a closely watched speech in August, Powell's concerns about the job market exceeded some colleagues' worries about inflation at the time. The question now is: will Powell further strengthen this concern following the weak August nonfarm payrolls report? If he does, it would confirm market expectations for "continued rate cuts in upcoming meetings," but might also need to overcome concerns from some colleagues who are reluctant to commit to such rapid policy shifts due to doubts about "neutral interest rate levels" and "whether rates should be adjusted to neutral levels."

Rebecca Chesworth, senior equity strategist at State Street Global Advisors, stated: "If the Fed really cuts rates by 50 basis points, it could be interpreted as the situation being worse than we imagined, such as the job market slowing down, or some economic data anomalies we haven't yet detected. This situation can have different interpretations, as current market sentiment could quickly reverse."

Markets have priced in cumulative rate cuts of 127 basis points through July 2026, meaning the Fed faces a higher bar to maintain investor optimism.

Thomas Mathews, Asia-Pacific markets head at Capital Economics, said: "Markets now seem to have priced in quite a lot of rate cuts. Overall, this perhaps means the possibility of a hawkish surprise is greater than a dovish surprise. But the Fed will likely stick to cautious communication and won't reveal too much."

This decision comes as investors also worry about political interference with Fed independence. The US Senate has confirmed President Trump's nominee Stephen Miran to serve on the Fed's Board of Governors, while an appeals court ruled that Trump cannot fire Lisa Cook, who will also attend the meeting. Both events are considered unlikely to affect the Fed's Wednesday decision, with markets having fully priced in a 25 basis point cut.

In this eventful week, the Bank of Canada is also expected to cut rates by 25 basis points, while the Bank of Japan and Bank of England are expected to keep rates unchanged.

**Individual Stock Focus**

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Tesla CEO Musk plans to hold a robotics and vehicle production meeting next week.

Micron may significantly raise storage product prices by 30%.

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NVIDIA is expected to be the first to adopt TSMC's A16 process technology.

Morgan Stanley noted that Yum China has resilient earnings and stable shareholder returns.

Goldman Sachs raised NetEase's target price to $161.