To The Moon

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Overview

The stock market capped the week by having a down day to open August as renewed economic fears unsettled investors. The month of relative stability ended on a soft note although not enough to end the month in the negative.

The final week of July was the worst week for the market since the early April tariff announcements. The sell-off was driven by a new round of tariffs, and jobs data that showed deepening cracks in the labor market. Since April, 258,000 jobs had been revised out of previous jobs reports, and a weak 73,000 were created in July. Total unemployment remained steady at 4.2%. 

The substantial down-revision culminated in the chief of the Bureau of Labor Statistics being terminated, who was previously approved unanimously by the US Senate. Kevin Hasset, the Director of the National Economic Council and an in-the-running for the next Fed chair, signaled that the White House would desire more explicit oversight of economic data releases.

A long-standing trade provision known as the de minimis exemption, which for years allowed goods valued under $800 to enter the United States tax and duty-free, has been eliminated and will roll off on August 29th, 2025.

Long-Run Tariff Impacts

Several revised tariff figures were announced in mid July, the new duties are based on whether a nation was able to negotiate a revised trade agreement with the United States. Key rates include a 50% rate for Brazil, 39% for Switzerland, 25% for India, and 40% for Laos. The European Union negotiated a 15% rate for most goods, a significant increase from the previous 4.8% average, but lower than the 30% threatened. Thailand secured a 19% tariff, reduced from a threatened 36%. The Canadian rate was increased to 35%, from 25%, though it appears that at this time that goods governed under CUSMA are exempt – which is north of 95% of goods. According to RBC the CUMSA exemption has resulted in the effective tariff rate being around 5% though it is becoming more difficult to estimate which goods apply, and which do not given the piecemeal policy.

Mexico, the US’s largest trading partner, has received a 90 day extension to tariffs on its goods while a deal is worked out. The stated figures are 25% on all goods, 25% extra on cars, and 50% extra on steel, aluminum and copper. Copper tariffs only apply to intermediate products, with ore and finished products being exempt. Like Canada, goods under CUSMA are exempt, which results in an effective tariff rate below 5%.

The Yale Budget lab now estimates that as importers shift away from tariffed goods, the effective tariff rate will still be the highest rate since the 1930s at 18.3%. In the aggregate, real GDP growth will likely be weighted down by around 40bps over the long term, with peak unemployment effect being 70bps higher by the end of 2026. Ironically, the hardest hit is expected to be advanced manufacturing, where the US still holds a competitive advantage.

The median cost per household is estimated now to be $2,200 annually. Consumers face high increases in clothing and textile prices in the short-term, with an estimated 38% increase on apparel. Though Yale estimates shifts toward tariff-free manufacturing will likely reduce this to 17% in the long-run. 

FOMC Split on Rate Cut

After ceasing rate increases in late 2024 with a range of 4.25% to 4.50%, the Fed had spent most of 2025 in “wait-and-see” mode. While economic data came in moderated, inflation continued to be above what the Fed wanted. In communications, the FOMC appeared to be more willing to cut in the second half of the year.

With the introduction of tariffs, which add uncertainty and inflationary pressure, the Fed once again elected to keep rates steady. The result was a 9-2 decision, the most split the FOMC has been since September 2019 and one of the few times since the global financial crisis the FOMC has been split on matters of rates.

The majority argued that with inflation “somewhat elevated” and the labor market “solid,” a restrictive policy stance remained appropriate. Though, critics posit that political pressure from Trump had all-but-ensured the FOMC would assert its independence by not cutting.

The dissenters argued that the Fed should “look through” the temporary, “one-off” price increases caused by tariffs and focus on the weakening economic outlook, especially around the labor market. The dissenters may have been right to be concerned about the job market, as previously discussed, two days later more than 258,000 jobs had been revised out of previous jobs reports, and a weak 73,000 jobs were created in July.

Congress Moves to Regulate Crypto

Stablecoins are crypto currencies designed to maintain a stable value. Unlike speculative coins like Bitcoin or Ethereum, stablecoins are typically pegged to currencies like the US dollar. Theoretically, these allow for a more frictionless movement of the crypto market as users can exchange speculative assets instantly for a fee often less than a fraction of a percent.

As of the end of July, the stablecoin market is around $267 billion, growing more than $2 billion per week thus far in 2025 with the entrance of traditional financial institutions and even payment processors into the market.

With a 308-122 vote, the House moved to approve the GENIUS bill. The bill begins the process of regulating cryptocurrency, specifically stablecoins. The crypto industry broadly backed the bill and had spent some $240 million in lobbing in 2024. Ironically, the traditional banking industry spent just $64.9 million during 2024.

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