Inflation Rises but Fed Still Poised to Cut Rates
Core inflation, measured by the personal consumption expenditures price index (PCE), rose to 2.9% in July, its highest level since February, reflecting the impact of Trump’s tariffs. Despite the uptick, the increase was in line with forecasts, and consumer spending and income both showed solid gains. The report reinforces expectations that the Fed will still cut interest rates in September, with the size of the move hinging on labor market data. Energy prices fell sharply while services costs drove most of the monthly increase.
U.S. Economy Outpaces Expectations in Q2
The U.S. economy expanded at a 3.3% annualized rate in the second quarter, stronger than the initial 3.0% estimate and above forecasts. Consumer spending and stronger domestic sales drove the gains, while trade flows were heavily influenced by tariff-related import and export swings. Net exports added nearly five percentage points to growth after imports plunged and exports declined slightly. Looking ahead, economists expect growth to cool closer to 1.5% as tariffs weigh more directly on consumers.
U.S. Ends De Minimis Loophole, Shaking Up Global Retail Trade
President Trump abruptly ended the de minimis exemption, which allowed shipments under $800 to enter the U.S. duty-free, disrupting supply chains and raising costs for businesses and consumers. The policy shift is expected to add at least $10.9 billion in costs for U.S. households, with low-income families hit hardest, while smaller e-commerce sellers and global marketplaces like Etsy and eBay face steep operational challenges. Retailers including Tapestry and Lululemon, warn of major profit headwinds, while some small international sellers are halting U.S. sales altogether. Larger players like Amazon and Walmart may benefit as consumers shift toward established retailers with U.S.-based fulfillment networks.
