1. Tariff Shock: Scope & Consequences
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April 2 “Liberation Day” tariffs: blanket 10% on all imports (excluding Canada/Mexico energy), with 25% on autos, metals, China, Canada, Mexico.
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Budget Lab (Yale) estimates: short-term consumer price levels up 2.3%, costing households ~$3,800/year. Real U.S. GDP growth cut by 0.9 percentage point in 2025; long-run output ~0.6% smaller.
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OECD and World Bank project U.S. GDP growth slowing to ~1.4–1.6% for 2025.
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Ripple effects include global growth downgrade (OECD to 2.9%) and emerging-market spillovers.
2. Inflation: Sticky & Tariff-Driven
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Tariff-induced price hikes expected to push Core PCE inflation to ~3% by year-end.
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Fed officials caution new tariffs could trigger “meaningful” inflation this summer.
3. Labor Market: Cooling but Still Tight
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May 2025 unemployment at 4.2%.
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Tariff policies may reduce payrolls by ~127,000 and lift unemployment by 0.1 ppts by year-end.
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Fed SEP projects unemployment rising to 4.5% into 2026.
4. Fed Policy: A House Divided
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June hold at 4.25–4.50%; dot-plot signals two cuts in 2025.
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Powell, Bostic, Barkin: take a "wait-and-see" stance, cautious on tariffs-driven inflation.
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Other Fed voices (Waller, Bowman) push for cuts as early as July.
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BofA warns of a bifurcated outlook: strong labor equals no cuts; weakness triggers 75 bps of cuts starting September.
📈 Proprietary Scenario Projections
Scenario Overview
Scenario GDP Growth '25 Core PCE % Unemployment Rate Fed Policy Path Base Case 1.4% 3.0% 4.5% Holds rates in H1, then cuts by 50 bps between September and December Soft Landing 1.8% 2.5% 4.3% Single rate cut of 25 bps in October Weakening Shock 1.0% 3.3% 4.8% Two rate cuts totaling 75 bps starting in September Stagflation Risk 0.5% 3.5% 5.0% No rate changes; Fed maintains current policy through year-endKey Assumptions: Tariff escalation remains paused, and no global recession occurs. Data insights are based on projections from SEP, Reuters, and Budget Lab analysis.
📊 Chart Insights (Conceptual Visuals)
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GDP Fan Chart: centerline 1.4%; ±0.4 ppts variance (0.5–1.8%).
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Core PCE Inflation: steady rise; ~2.5% mid-year → ~3.0% by end.
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Unemployment Path: gradual increase: 4.2% → 4.5% (base), up to 5.0% (stress).
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Fed Funds Rate Outlook: mid-band hold through August; decision hinges on Q3 data.
🔍Deep Dive Analysis
A. Supply-Chain & Investment Slowdowns
Costlier imports (metals, autos, apparel +17%) restrict supply, sowing cost-push inflation and cutting capital spending. Budget Lab estimates long-run GDP impact of −0.6%.
B. Consumer Confidence & Spending
June Conference Board index fell notably, driven by tariff fears and price rise anxieties. Higher prices erode real incomes, especially for lower-income households, further slowing consumption.
C. Fed Strategic Outlook
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Powell: tight policy until tariff impact clarity—no cuts before September.
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Bostic: supports only one late-2025 cut if inflation stabilizes near 3% and growth slows to ~1.1%.
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Doves (Waller/Bowman): cut sooner if inflation moderates; Hawks (Barkin/Most): maintain until disinflation solid.
➔ Key Risks & Watchpoints
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Tariff deadlines: July 9 pause expiration could trigger inflation shock.
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Labor market signals: rising unemployment and payroll softening could force Fed’s hand.
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Geopolitical flare-ups: tensions (Iran-Israel, Canada/Mexico trade spat) impact global sentiment and risk premia.
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Consumer sentiment: pressure from inflation undermines late-year growth foundations.
Summary Insights & Strategic Implications
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Base Case: soft slowdown; Fed waits, then modest easing in late 2025.
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Downside Risk: stagflation remains possible with cost-push inflation and wage price spiral.
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Fed Dilemma: time/data-dependent policy hinges almost entirely on tariff inflation persistence vs labor slack emergence.
Educational purposes only. This content does not constitute investment advice or financial recommendation
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