US Economy: Weekly Commentary – July 14, 2025

US Market Review

Long-term bonds underperformed as yields rose. Stocks declined broadly. The dollar strengthened. Oil prices increased amid supply concerns. Geopolitical risks persist. Bitcoin hit new highs.

Long-term bonds underperformed last week as the yield curve steepened between 20- and 30-year maturities. A broad selloff on Friday drove yields higher across the curve, reinforcing the view that current interest rate levels are appropriate for the economic environment. Notably, 10-year Treasury yields have remained stable for the past three months, signalling market alignment with Chair Powell’s policy stance.

Equity markets experienced broad declines. Large-cap stocks fell 0.30%, while small- and micro-cap stocks declined 0.60% and 0.98%, respectively. The “Magnificent 7” outperformed, rising 0.55%. Sector performance was mixed, with financials underperforming—down nearly 2%—while the energy sector advanced just over 2%.

The U.S. dollar gained 0.76% against the euro. WTI crude oil rose 2.35%, supported by expectations of tighter supply amid rising summer demand. The International Energy Agency emphasised that actual market tightness may be understated in the data. Saudi Arabia reaffirmed its commitment to OPEC+ production cuts, while Russia pledged to compensate for earlier overproduction. Strong Chinese import demand and a continued decline in U.S. drilling rigs point to constrained future supply. Geopolitical risks remain elevated as markets await Donald Trump’s upcoming statement on Russia and the potential for new European sanctions. Gold gained 0.71%, and Bitcoin rose more than 8.5%, setting new all-time highs.

US Market Views Synopsis

Fed sees persistent inflation. Unemployment remains low. Tariff uncertainties continue. Views on rate cuts are divided. The Fed takes a cautious approach with no guaranteed cuts this year.

The June 2025 FOMC minutes reveal a Federal Reserve navigating elevated uncertainty amid persistent inflation and solid economic growth. Inflation remains above the 2% target, uneven across sectors, prompting divided views on monetary policy. While some officials expect no rate cuts this year due to ongoing inflationary pressures and economic resilience, most anticipate at least one cut if data confirms easing price pressures; a few are open to a July reduction. Tariff-related risks remain a key concern, with uncertainty about their timing, magnitude, and inflation impact amid supply-chain disruptions. Long-term inflation expectations remain well anchored despite these challenges. The Committee unanimously maintained the federal funds rate at 4.25–4.50% and continued balance sheet runoff, which has reduced holdings by $2.25 trillion since June 2022, expected to conclude by early 2026. Overall, the Fed emphasizes a cautious, data-driven approach, balancing risks to growth and inflation while ensuring clear communication amid evolving economic and geopolitical conditions.

FOMC Minutes

The June 2025 FOMC minutes reveal uncertainty over tariffs, inflation persistence, and growth, leading to cautious policy with no immediate rate cuts and ongoing balance sheet runoff.

The June 17–18, 2025 FOMC minutes reveal a Federal Reserve wrestling with elevated uncertainty as it strives to balance its dual mandate: while economic activity has remained solid and the unemployment rate low, inflation—though eased from its 2022 peak—persists above the 2 percent target and is uneven across sectors, leading participants to express divergent views on the appropriate policy path. Some officials now believe no rate cuts will be appropriate in 2025, citing ongoing inflationary pressures and economic resilience, whereas most anticipate one or more reductions later in the year if data confirm a moderation in price pressures; a couple even signalled openness to a July cut. Tariff-related risks loom large in their deliberations, with many acknowledging considerable uncertainty about the timing, magnitude, and persistence of tariff-driven price increases—especially given potential supply-chain disruptions and pass-through dynamics—though long-term inflation expectations remain well anchored. In financial markets, the improved growth outlook and easing trade tensions pushed up Treasury yields and equity prices, tightened credit spreads and lowered near-term inflation compensation, while funding markets stayed stable amid ample liquidity. The staff forecast stronger GDP growth through 2027 and a gradual return of inflation to 2% by 2027, albeit with risks skewed to the downside for growth and to the upside for inflation. Participants unanimously agreed to maintain the federal funds rate at 4.25–4.50% and to continue balance sheet runoff—since June 2022, SOMA holdings have declined by $2.25 trillion—with respondents expecting runoff to conclude around February 2026, leaving the balance sheet at approximately 20% of GDP. Overall, the Committee underscored a cautious, data-dependent approach, emphasising the importance of clear communication about risks and the need to ensure inflation expectations remain anchored amid an evolving economic and geopolitical landscape.

We don’t expect more than one rate cut this year but wouldn’t be surprised if the Fed doesn’t cut at all, given persistent inflation and low unemployment.

Tariffs

President Trump extended tariffs on key trading partners. Rates increased significantly. Geopolitical risks were highlighted. Legal challenges persist. Uncertainty continues to affect global trade policy.

On July 7 and 9, President Donald Trump announced a series of new tariffs via Truth Social, imposing duties ranging from 20% to 50% on multiple trading partners, effective August 1. Despite a firm public stance, this action effectively extended the previous July 9 deadline, providing additional time for negotiations with key countries such as Japan, South Korea, and Brazil, which collectively account for nearly 10% of U.S. imports. Japan and South Korea were assigned a 25% tariff, while Brazil’s rate increased substantially to 50%. An executive order formalized the extension of these reciprocal tariffs for all partners except China, which remains subject to the original August 12 deadline. The European Union, representing approximately 18% of U.S. imports, was notably excluded from this round and is now urgently pursuing a resolution. Furthermore, the administration signalled heightened geopolitical risks by warning of a 10% tariff on nations aligned with BRICS or engaging in de-dollarisation efforts. Concurrently, legal challenges to the administration’s tariff authority persist, with a significant court ruling anticipated in August. The announcement of a 50% tariff on copper imports drove U.S. futures to record levels, although experts caution that domestic production is unlikely to increase due to structural constraints and lengthy permitting processes. Overall, the U.S. trade policy remains firmly protectionist, with a 10% baseline tariff serving as the minimum and sector-specific tariffs expected to rise, perpetuating uncertainty and tensions within the global trade environment.

We expect inflationary pressures and disruptions in the global trade chain as a result of extended tariffs, increased rates, and ongoing geopolitical and legal uncertainties.