Retail sales surpassed Wall Street's estimates in August as investors kept a close eye on any signs of a slowdown in consumer spending. The data comes as the Federal Reserve's two-day policy meeting kicks off in Washington, with the central bank widely expected to cut interest rates as economic growth slows and inflation lessens.

Retail sales rose 0.1% in August. Economists had expected a 0.2% decrease in spending, according to Bloomberg data. Meanwhile, retail sales in July were revised to a 1.1% increase from a prior reading that showed a 1% increase in the month, according to Census Bureau data.

"The stronger than expected retail sales data for August suggest that, boosted by rapid wealth gains and falling energy prices, consumers continue to spend freely despite the labour market slowdown," Capital Economics North America economist Olivia Cross wrote in a note to clients on Tuesday.

August sales, excluding auto and gas, rose 0.2%, below consensus estimates for a 0.3% increase. The control group in Tuesday's release, which excludes several volatile categories and factors into the gross domestic product reading for the quarter, increased 0.3% in August, in line with estimates.

Inside the report, miscellaneous store retailers were the largest gainers, with sales rising 1.7%, while a 1.2% decline in sales at gasoline stations pulled down the overall headline number.

"With consumption still very healthy, for now, recession fears appear overblown," Cross added.

The release comes as investors widely expect the Fed will cut interest rates for the first time since 2020 when its next policy decision is announced at 2 p.m. ET on Wednesday.

"I don't think this changes really anything," Bank of America Securities senior US economist Stephen Juneau told Yahoo Finance. "It's kind of a non-event."

Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards

Markets have been debating how large of a cut the Fed will enact. As signs emerge of slowing in the labor market and as inflation falls toward the Fed's 2% target, markets have shifted to price in a 50 basis point cut from the Fed. The August retail sales data did little to change that thinking.

On Tuesday morning, markets were pricing in a 67% chance that the Fed cuts interest rates by 50 basis points, compared to 33% odds that the Fed opts for a smaller 25 basis point cut, per the CME FedWatch Tool.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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