U.S. equities climb higher, fueled by expectations of interest rate reductions
In a recent development, oil prices have retreated due to the International Energy Agency raising its forecast for supply growth in 2025 and 2026, leaving the world with a surplus. This news comes as the ongoing trade tensions continue to shape the economic landscape, particularly in the United States.
The current impact of Donald Trump’s tariffs on the US economy is a complex mix of negative growth effects, inflationary pressures, and sectoral disruptions. Despite widespread expectations that tariffs would sharply increase consumer inflation, US inflation has remained relatively stable recently, although modest price increases in certain goods have been observed.
According to Ipek Ozkardeskaya, senior analyst at Swissquote Bank, investors have increased September cut expectations, thinking that imported goods inflation remained lower than feared as companies continued to absorb tariff costs.
The Yale Budget Lab estimates that all tariffs in place in 2025 reduce US real GDP growth by about 0.5 percentage points annually in 2025 and 2026, with the long-run US economy remaining about 0.4% smaller permanently—equivalent to roughly $125 billion annually.
Though economists predicted large tariff-driven inflation spikes initially, actual inflation has been more muted. Price increases have been gradual, reflecting tariffs' slow pass-through to consumer prices. The US Consumer Price Index shows only modest rises in costs for products like clothing and home furnishings.
However, tariffs continue to suppress growth and harm employment. Tariff policies are estimated to increase unemployment by 0.3 percentage points in 2025 and 0.7 in 2026, reducing payroll employment by roughly 505,000 jobs by the end of 2025. States like California experience outsized impacts, with significant job losses and higher costs for households and businesses.
Sectoral effects are also evident, with manufacturing output estimated to rise slightly (+2.1%), but gains are offset by declines in construction (-3.6%) and agriculture (-0.8%).
The ongoing tariff uncertainty weighs on market sentiment, keeping equity markets range-bound. Mixed signals on trade negotiations with partners like Japan, Korea, India, and China add volatility. Investor fears fueled by Trump’s criticism of the Federal Reserve and potential leadership changes have also contributed to market turbulence.
Tariffs could cost US households around an extra $2,400 on average in 2025, with higher consumption costs and anticipated supply chain disruptions causing stockpiling and shortages.
Thus, while inflationary pressures have been less severe than initially feared, tariffs are nevertheless imposing a substantial drag on economic growth, increasing unemployment, and elevating costs for many American consumers and businesses. Prolonged tariff policies introduce uncertainty, disrupt global supply chains, and contribute to a persistently smaller and less efficient economy.
In other market news, European stock markets finished in the green, with the CAC 40 in Paris, DAX in Frankfurt, and FTSE 100 in London all recording gains. The S&P 500 and Nasdaq extended gains and reached new records, while the dollar slumped against other major currencies as the prospect of lower interest rates reduced its appeal to foreign investors. The US consumer price index remained steady at 2.7 percent in July, and the dollar/yen, euro/dollar, and euro/pound exchange rates also saw fluctuations.
