Tag: politics

Economic Week in Review: Trump Announces Updated Blanket Tariffs, Consumers Are Losing Their Fear of Inflation, Uncle Sam Notches June Budget Surplus, and More

Hello, my friends!

This week kicked off with a stark reminder to investors that trade-related drama and uncertainty remains very much a part of the economic landscape, with a 400-plus-point drop in the Dow Jones Industrial Average triggered by a fresh wave of White House tariff declarations.

On Monday, President Trump announced that as of August 1, at least 14 countries will be facing duties similar to the “Liberation Day” tariff rates that he imposed on April 2 – and subsequently paused for 90 days.

That pause was scheduled to end on Wednesday, but the president extended it to the beginning of August as he announced the updated tariff schedule.

While imports from some nations, including Japan and South Korea, now will be taxed at relatively milder tariff rates of 25%, other countries, including Laos and Myanmar, are looking at rates as high as 40%.

Per the official notification letters sent to each nation, the rates may be adjusted either up or down “depending on our relationship with your Country.”

FOMC Minutes: Policymakers See Rate Cuts Coming but Can’t Agree on Details

Other prominent news from this economic week included the release on Wednesday of the minutes from the Federal Reserve’s June policy meeting, which revealed that while most central banks see rate cuts looming, there’s little agreement on the particulars at this time.

As you may know, policymakers elected last month to leave the fed funds target range at 4.25%-4.5%, the fourth time they’ve stood fast rather than make any rate changes. Still, the newly published minutes suggest there is a general consensus among members of the Federal Open Market Committee that rate reductions will resume before 2025 is finished, with the summary noting:

“Most participants assessed that some reduction in the target range for the federal funds rate this year would likely be appropriate.”

However, as for the details of any prospective cuts, such as when they might begin or just how many we could see this year, the meeting narrative indicated there was no consensus at all.

For example, according to the minutes, a “couple” of participants suggested rate cuts could begin as soon as this month’s meeting, while “some” said it may be best not to reduce rates at all this year.

Recently, Fed Governors Michelle Bowman and Christopher Waller have said publicly they would be in favor of cutting rates this month if inflation continues to cooperate; even though the meeting minutes don’t refer to participants by name, then, it seems a reasonably safe bet that Bowman and Waller are the “couple” of officials open to resuming cuts this month.

Still, it seems that no rate cuts will be coming until the requisite number of policymakers are satisfied that tariff distress won’t exacerbate price pressures:

“Participants agreed that although uncertainty about inflation and the economic outlook had decreased, it remained appropriate to take a careful approach in adjusting monetary policy.”

Currently, more than 90% of traders are betting we’ll not see a rate cut in July, while 70% say the Fed will start cutting again at its September meeting.

New York Fed Survey Reveals Consumers’ Inflation Fears Subsiding

Perhaps improving the outlook for the resumption of rate cuts was another key bit of news this week that actually seemed to fly under the radar: a decline last month in the inflation expectations of American consumers.

According to June’s Survey of Consumer Expectations conducted by the Federal Reserve Bank of New York, Americans believe annual inflation will be at 3% as of June 2026. That 0.2 percentage point drop from May puts consumers’ 12-month inflation expectations back down to where they were in January, before a wave of tariff-induced anxiety pushed those year-out inflation projections up to 3.6% in March and April.

This is important in part because rising inflation expectations can be a distinct challenge for monetary policymakers. That’s because there’s a risk those expectations might serve to drive prices higher as consumers accelerate spending in an effort to beat the future inflation they believe will come to pass.

Analysts say that because the imposition of tariffs has yet to reintensify price pressures, Americans have grown hopeful that they may, in fact, dodge what they’ve feared is a looming inflation bullet. The annual consumer price index rose 0.1% in May to land at 2.4%, but that’s a relatively giant step down from the 3% level at which CPI sat in January just prior to the onset of the current tariff drama.

Other notable data from the most recent Survey of Consumer Expectations included a 0.8 percentage point drop in the mean perceived probability of losing one’s job within the next year to 14%. That’s the lowest reading for that metric since December.

Optimism Among Small Business Owners Remained Resilient in June

In other news, optimism among America’s small business owners remained fairly resilient in June, as evidenced by last month’s Small Business Optimism Index released on Tuesday by the National Federation of Independent Business (NFIB).

The index fell just two-tenths of a percentage point to land at 98.6, keeping the metric above both the consensus estimate of 97.9 and its historical average of 98.

Perhaps even more notable than the durability of the headline measure was the decline in a key collateral metric, the Uncertainty Index, which dropped five points last month to come in at 89. Although still relatively high, the Uncertainty Index now is at its lowest level of the year.

As for the single most important problem faced by business owners last month, the survey results revealed it was taxes, with 19% of respondents saying so. For much of the last several years, inflation was cited each month as the biggest problem faced by business owners, but that was down to 11% in June, the lowest level since September 2021.

One area of persistent concern for business owners remains labor quality, with 16% of survey respondents reporting that as their biggest operational challenge. In fact, according to the data, 86% of business owners who said they were looking to hire last month “reported few or no qualified applicants” for the positions they were seeking to fill.

In a statement on the survey results, NFIB chief economist Bill Dunkelberg referred to small business owner optimism as “steady,” adding:

“Taxes remain the top issue on Main Street, but many others are still concerned about labor quality and high labor costs.”

Treasury Reveals Uncle Sam Reaped a Budget Surplus in June as Tariff Revenue Soared

Finally this week, the Treasury Department reported on Friday that the federal government actually posted a budget surplus in June, thanks to a sizable boost in receipts last month fueled by a windfall of tariff revenue.

You read that correctly: The government brought in more money than it spent last month…and did so thanks to the wide array of tariffs imposed by the Trump administration.

Love them or hate them, there’s no denying that tariffs now are reaching critical mass as revenue-generation mechanisms. According to the numbers, the federal government managed to collect $26.6 billion in net tariff revenues last month. Not only is that more than four times the $6.3 billion collected in June 2024, it’s a new all-time record for monthly tariff revenue.

As for the impact on the budget deficit, the tariff monies realized last month – along with a $187 billion drop in June government spending – combined to hand the country a $27 billion budget surplus in June.

That good news aside, the running total of the annual deficit still is slightly north of $1.3 trillion, which is about 5% above where it was this time last year. When the dust settled on fiscal year 2024, the deficit total landed at $1.83 trillion…the third-highest annual budget deficit in U.S. history.  

That’s it for now; enjoy the rest of your weekend!

This post is created and published for general information purposes only. The Gold Strategist blog and Bob Yetman disclaim responsibility for any liability or loss incurred as a consequence of the use or application, either directly or indirectly, of any information presented herein. Nothing contained in this post – or any other post featured at this blog – should be construed as a solicitation or recommendation to engage in any financial transaction. You should seek the advice of a qualified professional before making any changes to your personal financial profile.

CBO: Big, Beautiful Bill Looks Even Uglier After Second Glance

Analysts at the Congressional Budget Office recently took a closer look at President Trump’s landmark budget reconciliation known as the Big, Beautiful Bill…and concluded it’s even uglier than it appeared after their initial passing glance.

Upon completion last week of its second – and more comprehensive – review, the CBO revealed the bill actually could add about $2.8 trillion to deficits over the next 10 years…roughly $400 billion more than the agency’s previous estimate of $2.4 trillion.

Notably, the first number did not account for the manner in which the bill would impact the economy nor the consequential effects on the budget from those impacts. The scope of the initial estimate was limited to the bill’s prospective direct impact on the budget. The updated “dynamic” estimate seeks to account, as well, for the potential macroeconomic effects of the bill, including its anticipated impacts on inflation, interest rates and overall economic growth.

And the CBO’s conclusion? Life under the Big, Beautiful Bill is poised to become even more fiscally precarious.

CBO Sees Legislation Boosting Real GDP by Just 0.5% Over the Next Decade

The analysis is replete with details, but there are a couple of “punchlines” readers would do well not to miss. One is that, in the estimation of the agency, the combination of tax cuts and spending cuts – particularly those to Medicaid and food stamps – would boost real GDP over the next decade by just half a percentage point…far less than the 3%-or-so gain projected by the White House’s Council of Economic Advisers.

Another zinger in the CBO’s fresh review is that the overall cost of the bill could cue a projected 14-basis-point bump in 10-year Treasury rates. This jump would be a direct result of not only the static increase in the nation’s debt load but also the demand for higher rates by investors in America’s debt…investors who expect to be better compensated for assuming greater perceived risk. The pricier debt service that comes with these higher rates is the principal driver of the $441 billion increase to deficits the CBO now sees as likely.

Public’s Share of Federal Debt Poised to Reach 124% by 2034

As for the consequential impact to the public’s share of the federal debt, that now is projected to rise by $3.3 trillion over the next 10 years, up from the CBO’s previous estimate of $3 trillion. An associated implication, says the CBO, is that the ratio of public debt to GDP is poised to rise from 117% in 2034 (based on a January CBO analysis of the nation’s long-term fiscal outlook) to 124%…a figure that many economists say would redline the nation’s already overworked debt engine.

As you might imagine, members of the administration have been critical of the CBO’s dour prognostications. White House spokesman Kush Desai recently suggested the agency seems prone to overlooking key features of the president’s economic priorities that could go a long way to ensuring the nation’s debt does not worsen in the years to come:

“The Trump administration remains committed to an America First agenda of tariffs, rapid deregulation and domestic energy prediction that ushered in historic job, wage and economic growth during President Trump’s first term — prosperity that CBO had also failed to predict back in 2017.”

Except there are few comprehensive analyses of the Big, Beautiful Bill that reach the same optimistic conclusions at which Desai and others appear to have arrived. As the National Review said shortly after the CBO released its most recent assessment of the legislation:

“Not a single independent analysis comes anywhere close to matching Republicans’ rosy growth assumption. Accordingly, the consensus among budget experts is that the megabill will be anything but deficit-neutral, adding trillions of dollars to the national debt by 2034.”

Budget Watchdog: Bill “Not Paying for Any of Itself”

Among those independent analyses at odds with the administration’s outlook (in addition to the CBO’s detailed scrutiny, of course) is that of the Committee for a Responsible Federal Budget, whose senior vice president and policy director, Marc Goldwein, lodged this pointed criticism:

“It’s not only not paying for all of itself, it’s not paying for any of itself.”

The ongoing process of examining – and reexamining – the Big, Beautiful Bill to understand the degree to which it may exacerbate the nation’s already fraught fiscal outlook is hardly without value. But there’s a “bigger picture” element to this discussion of which prudent investors should not lose sight: namely, that even if, by some miracle, the bill does prove to be “deficit-neutral,” that wouldn’t change the nation’s longstanding unsustainable fiscal trajectory.

It’s a fiscal trajectory that’s likely to become an even more profound and impactful stressor of capital markets as politicians continue to put off dealing with it in any meaningful way; but also, a trajectory that could significantly catalyze select safe-haven assets which live entirely outside the U.S. financial system…including – or perhaps especially – gold.

Bank of America Says Debt – Not Geopolitical Risk – Will Be the Catalyst of $4,000 Gold

As a structural portfolio component, some of investing’s most dynamic minds, including Ray Dalio and “Big Short” prophet Porter Collins, are “all in” on gold largely because of its capacity to thrive amid fiscal chaos. So are analysts at a number of investment banking giants, including those at Bank of America, who believe America’s fiscal fragility…rather than ubiquitous geopolitical tension…will be the primary reason gold reaches $4,000 per ounce within the next 12 months.

That Uncle Sam’s fiscal profligacy trump’s kinetic war as a reliable gold driver speaks volumes about not only how unfortunate our macro debt outlook has become…but also how important it may be to be sure the yellow metal is among one’s holdings in the years ahead.

This post is created and published for general information purposes only. The Gold Strategist blog and Bob Yetman disclaim responsibility for any liability or loss incurred as a consequence of the use or application, either directly or indirectly, of any information presented herein. Nothing contained in this post – or any other post featured at this blog – should be construed as a solicitation or recommendation to engage in any financial transaction. You should seek the advice of a qualified professional before making any changes to your personal financial profile.

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