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Tariffs & Deficits Are Steel-ing The Headlines
The Macro Institute's Weekly Economic Primer
The Macro Institute
June 09, 2025
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Here's What We're Watching This Week:
All eyes will be on Wednesday's CPI and Thursday's PPI, but we’re paying especially close attention to Tuesday’s NFIB Small Business Survey. It's one of the few sources that give us a ground-level view of how Main Street is handling rising costs from tariffs.
Friday brings the University of Michigan Sentiment Survey, where we’ll be watching some of our favorite housing series closely. But the real wildcard? The May U.S. Budget Balance update.
With debates heating up around the so-called “Big, Beautiful Bill,” everyone has a take on where the deficit is headed, but let’s be honest, most of these are just guesses. Forecasting debt service five years out is a fool’s errand (just compare 2020 projections to today’s reality).
The X-factor here is tariff revenue. We still don’t know what the final policy looks like (new steel tariffs were announced last week!), never mind the ultimate response from across the globe. Plus, we’ve never tested broad tariffs in a consumption-heavy economy like ours (where 68% of GDP is driven by spending).
Bottom line: The budget battle is loud, but the long-term math is messy.
The Macro Week In Review
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The Macro Week Ahead
⚒️ The Week That Was … Steel Tariffs & China
The latest developments in global trade arrived Wednesday of last week.
President Trump doubled steel tariffs from 25% to 50%, a worrying move ahead of the looming tariff pause expiration dates (July 9 for most of our trade partners and August 10 for China). The following day, a long-awaited call with President Xi potentially opened the door to formal trade negotiations.
This matters. The pause in reciprocal tariffs helped fuel the equity market rally off April’s lows, and Bloomberg estimates the pause saved the U.S. about 1.5 percentage points of GDP growth. But with that window set to close, stakes are rising.
U.S. effective tariff rate now sits at ~13.5%, down from a peak of ~27%. That leaves 14% still in limbo, either paused or under review. April 9 marked the tariff peak, so current data must be read through that lens, including the labor market data for April and May released last week.
Overall, the data painted a mixed picture:
May payrolls: +139K jobs and steady 4.2% unemployment
Household survey: Showed a massive 696K drop in employment
JOLTS: 7.4M openings in April, a strong print with layoffs at just 1.1%
ISM Manufacturing Employment: Weak at 46.8; S&P held firmer at 51.6
Markets cheered the payroll headline, but beneath the surface, cracks are forming. As trade tensions escalate, hiring and capex plans are likely to continue to slow.
🤔 The Fed's Dilemma
With the FOMC meeting on June 18, this week’s inflation and growth data is critical.
We’re watching how businesses are navigating tariff costs. Are they hiking prices, narrowing margins, or both? Here’s the lineup:
Monday: NY Fed 1-Year Inflation Expectations
Wednesday: May CPI
Thursday: May PPI
Friday: UMichigan Consumer Inflation Expectations
Recall that April’s CPI and PPI prints were more disinflationary than anticipated as headline figures benefited from lower energy prices and core was aided by lower prices in services as consumers pulled back spending on discretionary items in April.
Leading indicators (like regional PMI prices-paid components) suggest inflation pressures are building. And comments from the Beige Book, while anecdotal, confirm input costs are rising, and some firms are fully passing those on to consumers, especially service firms.
Despite recent dovish talk from FOMC members, the data isn’t cooperating. The odds of a rate cut in June are down from 14% to 0%, and the bond market is getting the message. Expectations for any 2025–26 rate cuts are fading fast. A rate hike isn’t on the table yet, but anything that pushes the Fed in a more hawkish could rattle markets, especially with the S&P nearing all-time highs.
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