Economic Commentary – July 2025

In a designed display of symbolism and an effort to commemorate U.S. Independence Day, President Trump signed his hallmark piece of legislation, the One Big Beautiful Bill Act, into law on July 4 after having been approved by both the Senate and House on July 1 and July 3, respectively. In short, and far from exhaustive, the transformative tax and spending bill contained the following provisions: Grants an extension of the 2017 tax cuts that were slated to sunset at the end of the year; Increases spending on military defense, homeland security, and immigration enforcement; Raises both the debt limit $5 trillion to $41.1 trillion, and the state and local tax deduction to $40,000 from $10,000 for five years; Curtails/eliminates funding and tax incentives for green-energy initiatives, and healthcare and food assistance entitlement programs (e.g. Medicaid and SNAP). Despite the fiscal package’s many advocates and detractors (mostly aligned among political party allegiances), the non-partisan Congressional Budget Office forecasts the bill’s clauses will add $3.4 trillion to the U.S. budget deficit by the end of 2034.

Following several months and scrambled weeks of tense negotiations, July also saw the U.S. secure new and revised trade “deals” (more akin to frameworks) with a slew of its larger global trading partners, as the latter had acquiesced to country-specific reciprocal tariff rates. Although the accepted U.S. import duty rates weren’t as punitive as those unveiled on Liberation Day (April 2), the estimated effective tariff rate in the U.S. now resides in a range between 15% - 18%, which is significantly higher than the 1.8% - 2.3% range that was in effect entering 2025.

On July 30, at the conclusion of the Fed’s fifth policy meeting of the calendar year, the FOMC voted 9-2 (absent Fed Governor Adriana Kugler) to leave its overnight benchmark rate unchanged, maintaining the federal funds target rate range at 4.25% - 4.50%. Following through on their rate cut propositions after June’s Fed meeting, Fed Governors Christopher Waller and Michelle Bowman cast two dissenting votes in favor of lowering the target rate range 25 basis points. This was the first time since 1993 that two Fed Board Governors dissented at the same meeting. While most FOMC voters still harbored the “wait-and-see” approach, both Governors Waller and Bowman cited below-trend real economic growth of 1.2% in the first half of 2025, a less dynamic and weakening labor market, inflation progress toward the mandated 2% inflation target, and a staunch belief that tariffs will cause a one-time, temporary increase in price levels, as reasons to validate their desires to reduce the policy rate range.

Closing the month, equity and fixed income markets were in direct contrast as stocks posted gains, led primarily by the information technology sector (the Magnificent Seven minus Tesla) and AI-linked names, and bonds posted losses due to spikes in interest rates, as inflationary progress had appeared to stall and potentially even reversed course, and the U.S. economy continued to display its resiliency, albeit in the face of emerging signs of slowing. Moreover, as of July 31, the interest rate futures market had assigned a probability of only one, 25 basis point rate cut before the conclusion of the year. At his post-meeting press conference, Fed Chair Powell seemed to harness what the market deemed to be a hawkish tone. Contrary to his two aforementioned colleagues, the Chairman (and other Fed members) aren’t convinced that the effects of tariffs will necessarily be short-lived. Only time will tell.    

U.S. Treasury yield curve saw yields in the 1yr – 30yr tenors all notch double-digit ascents as measures of economic resilience, stalled inflation progress, and hawkish statements from Chairman Powell led the market to lower its expectations for rate cuts in 2025.   

2-year/10-year spread: 42 basis points

3-month/10-year spread: 4 basis points

2-year/5-year spread: 2 basis points

3-month/30-year spread: 56 basis points

U.S. Treasury Yield Curve Source: Bloomberg

July 2025 Macroeconomic Highlights

Inflation, Expectations, and Consumer Sentiment¹:

CPI: 2.7% year-over-year (+0.3% month-over-month); Core CPI: 2.9% year-over-year (+0.2% month-over-month)

PCE: 2.6% year-over-year (+0.3% month-over-month);Core PCE: 2.8% year-over-year (+0.3% month-over-month)

PPI: 2.3% year-over-year (0.0% month-over-month); Core PPI: 2.6% year-over-year (0.0% month-over-month) Core PPI less trade services: 2.5% year-over-year (0.0% month-over-month)

Inflation Expectations: 1-year horizon: 3.0%, 3-year horizon: 3.0%, and 5-year horizon: 2.6%

Consumer Sentiment: 61.7 vs. 60.7 in June 2025; Current Conditions: 68.0 vs. 64.8 in June 2025

Consumer Expectations: 57.7 vs. 58.1 in June 2025

Labor Market²: The U.S. economy added +147,000 nonfarm payrolls in June, modestly exceeding the +106,000 expected by economists surveyed by Bloomberg. Notable job gains occurred in state government (+47,000), health care (+39,000), and social assistance (+19,000). Job losses continued in federal government (-7,000).  

• U-3 official unemployment rate: 4.1% vs. 4.3% expectation: -0.1% from May 2025.

• U-6 unemployment rate (marginalized, part-time workers for economic reasons): 7.7% (-0.1%).

• Labor force participation rate: 62.3% (-0.1%); Employment-to-population ratio: 59.7% (unchanged).

• Average hourly earnings for private nonfarm payrolls rose 8 cents to $36.30 (+0.2% month-over-month, +3.7% year-over-year).

• Revisions: May 2025 raised +5,000 to +144,000; April 2025 lifted +11,000 to +158,000.

• Employment Cost Index: +0.9% in the second quarter of 2025 vs. +0.9% in the first quarter of 2025.

Gross Domestic Product (GDP)³: According to the advance (initial) estimate, real GDP increased at an annual rate of +3.0% in the second quarter of 2025 vs. a decrease of -0.5% in the first quarter of 2025.

• Consumption: +1.4%; GDP Price Index: +2.0%; PCE Price Index: +2.1%; Core PCE Price Index +2.5%.

• Real disposable personal income: +3.0% vs. +2.5% in the first quarter of 2025.

• Personal savings rate as a percentage of disposable income: 4.7% vs. 4.3% in the first quarter of 2025

Housing Market⁴: Existing-home sales abated -2.7% (month-over-month) from May to a seasonally-adjusted annual rate of 3.93 million in June. Month-over-month sales in the Northeast, Midwest, and South subsided -8.0%,   -4.0%, and -2.2%, respectively, while sales in the West climbed +1.4%.

• Year-over-year sales were unchanged from June 2024.

• Total housing inventory registered 1.53 million units, -0.6% from May, but +15.9% from one year ago (1.32 million units). Unsold inventory sits at a 4.7-month supply at the current sales pace.

• The median existing-home price for all housing types was $435,300, +2.0% from June 2024 ($426,900), as prices rose in all four major U.S. regions.

• Average commitment rate for a 30-year, conventional, fixed-rate mortgage: 6.72%.

• New Home Sales: 627,000 (+0.6% month-over-month).

1 Source: Bureau of Labor Statistics (BLS), U.S. Department of Commerce, Federal Reserve Bank of New York – Survey of Consumer Expectations, and University of Michigan Surveys of Consumers

2 Source: Bureau of Labor Statistics (BLS)

3 Source: Bureau of Economic Analysis (BEA)

4 Source: National Association of Realtors (NAR), U.S. Census Bureau, and The Department of Housing and Urban Development

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