Fed Chair Janet Yellen reiterated on Friday the likelihood that a rate increase is likely this year, and she probably will repeat that sentiment in her semi-annual congressional testimony this week. However, she's stressed that any moves will be dependent on data.
Earlier this month, Wall Street was awash with speculation that the Fed might move on rates in September due to pockets of strength in the jobs market and improving factory activity, along with the alleviation of geopolitical issues primarily in Greece.
Read MoreRetail sales pullback sparks concerns about recovery
Such talk, though, never seems to last long.
Dan Greenhaus, chief strategist at BTIG, said the "two steps forward, one step back" retail sales report won't change "the larger narrative from the Federal Reserve's standpoint. The consumer isn't very strong and by extension, neither is the U.S. economy. Today's report doesn't alter that view in any respect."
Traders at the Chicago Mercantile Exchange had been betting the Fed would wait until January 2016 to hike rates. A few days ago, the probability of a hike rose to 50 percent in December, but that's back down to 48 percent.
The retail numbers came along with a sentiment survey that from the National Federation of Independent Businesses that showed a one-year low in confidence about business conditions.
The converging factors led several Wall Street economists to lower their second-quarter gross domestic product estimates, with Goldman Sachs in particular taking its number down from 3.2 percent to 3.0 percent. The Atlanta Fed is tracking quarterly GDP growth at 2.4 percent, after a 0.2 percent decline in the first three months of the year.
Nevertheless, John Vail, chief global strategist at Nikko Asset Management, is sticking to his well-out-of-consensus call for three—yes, three—Fed rate hikes this year.
"We chose a fairly optimistic scenario for the global economy and financial markets. Under that scenario, three rate hikes seemed right," Vail said. "Now obviously the world's a little bit different than before. For the time being China and Greece seem to be under control. So far, there's no sign that they've been rattled by that."
Vail's scenario would involve successive rate hikes in September, October and December, for which the CME is pricing in respective possibilities of 13 percent, 26 percent and 48 percent—if not impossible then at least considerably long odds.
Vail and others believe that viewing the data through a more comprehensive lens shows an economy in better shape than June's disappointment might suggest.
Still, May's big 1.2 percent jump in retail sales was revised down to 1.0 percent and April moved down to zero from 0.2 percent. June's decline of 0.3 percent came amid consensus estimates of a 0.3 percent gain. Year-over-year sales are now up just 1.4 percent, compared with June 2014 when the pace was 4.4 percent.
At the crux of the spending slowness has been a consumer unwilling to take on more debt despite huge increases in household wealth spurred by gains in financial assets, primarily stocks. The collective U.S. household balance sheet has swelled 46 percent, from $58.3 trillion in 2009 as the Great Recession was ending to $84.9 trillion in 2015, while household debt has increased less than 3 percent in each year, most recently up 2.2 percent in the first quarter, according to Fed data.
Wall Street expectations continue, however, for the Fed to look past data disappointments.
"With Greece being resolved and the geopolitical events being somewhat calm, I think it would be safer for the Fed to raise in September unless something really comes out that is extraordinary," said Doug Cote, chief market strategist at Voya Investment Management. "Right now, the data has been very supportive of a September move."
If that's the case, then it's not a stretch to argue that the data have been justifying a hike for months if not years; it's just a gun-shy Fed that has prevented a move.
"We're still in the same pattern of 2 to 2.5 percent GDP growth. It hasn't changed since the end of the recession," said Kathy Jones, fixed-income strategist at Charles Schwab. "The consumer's clearly more cautious than in the past, probably rightfully so considering everything the consumer's been through the last decade or two."