Brief Economic Briefing

 

Once upon a time you could count on Republicans to stand for lower taxes.  No more.  In case you missed it, last Friday, July 24, President Trump imposed new tariffs of 10% to 12.5% on 60 trading partners covering 99% of U.S. imports.  In a fit of pique, an additional 50% retaliatory tariff singling-out Canada was imposed as well.

Because the cost of these additional trade taxes are paid by consumers, the Yale Budget Lab now estimates that Mr. Trump's tax increase will cost American households an average of $1,100 per year.  That is double what it would have been had the president declined to impose higher taxes replacing the global tariff that expired on Friday.  

Notably, this tax increase wipes-out the $300 - $1,000 increase in average tax refund generated as a result of Trump's Big Beautiful Bill.

Five months into the Iran war the national price of gasoline is around $4 a gallon; so there is that additional household budget item. The Strait of Hormuz remains closed.  The Red Sea's Bab el-Mandeb (Gateway of Tears) is now threatened by the Houthis.  U.S. bases throughout the Gulf States remain vulnerable to attack.  And oil is trading close to $100 a barrel.

Naturally, it should come as no surprise that with the imposition of new and higher tariffs, rising energy costs, Iran war supply chain disruptions; businesses are raising prices.  Which increases the threat of rising inflation pressures. 

In closing this has pushed yields on the 10-year treasury - a major benchmark for setting consumer borrowing costs - above 4.6%.  The bond market looks spooked.  This impacts commercial loans and pushed the 30-year fixed rate mortgage rate to its highest level of the year, a move that could chill the housing market.  Notably, this is higher than where they stood following Mr. Trump's Liberation Day announcement that sent the bond markets into a tailspin. 

Admittedly, updates and briefings are incomplete.  For instance, unemployment for the month of June was 4.2%, ticking down from 4.3% in May.  According to the US Bureau of Labor statistics total unemployed persons stood at roughly 7.09 million, reflecting a stable labor market.  

Watch the Fed today.