The US economy may be roaring along, but it’s hard not to smell global stagnation ahead

Outlook

The US economy may be roaring along, as consumer spending among other data would have us believe, but it’s hard not to smell global stagnation ahead. The US tariffs are going to trigger contraction in most other countries, and stagnation is contagious. We stop buying from them, they stop buying from us, everybody loses.

 And yet the tariff effects are minor so far. What is top of the pile of concerns right now is whether former Fed board member Warsh is correct that the Fed’s policies have buttressed Wall Street but left Main Street in the dust. He has a point. Current Fed Waller is on his side. They are referring to the Fed’s giant purchases of Treasuries that blasted the financial sector with liquidity while keeping rates on the high side. See the Bloomberg chart.

So far it looks like Waller and perhaps one or two others will call for a rate cut next week but be outvoted. One giant problem: if the FOMC were to be convinced and wanted a cut, they couldn’t do it lest they be seen as giving in to political pressure. As for the calls by TreasSec Bessent to review and reform the Fed, he may have some good points but he also is meddling in an independent agency over which he has no authority. Who, exactly, should do any review and reform? Legally, it should be Congress, which has shot itself in both feet and is AWOL. Heaven help us if Trump appoints one of his famously unqualified toadies to do it.

On another front, while the FX market likes to ignore political events, the tariffs are coming, the tariff are coming—next week. And while the stock market is not the economy, it’s not independent of it, either. Reuters is “tracking how companies are responding to the threat posed by U.S. President Donald Trump’s tariffs. As of July 22, Reuters has counted 273 companies worldwide that have reacted to the tariffs in some manner. The estimated cost to the companies stood at over $34 billion, as of end May. Our tally is based on various sources, including quarterly financial reports, interviews and statements from company officials.”

So, how big is $34 billion in an economy of $29.3 trillion? A drop in the sea. All the same, the numbers better keep coming in good. Some bad numbers could see sentiment turn upside down.

Coming this morning is a Powell speech on regulation and on Thursday, TreasSec Bessent will join the US-China trade talks in Switzerland. Also Thursday is the ECB rate decision, almost certainly no change but perhaps with some trenchant remarks about bullies. The regional Fed reports are hardly ever eventful for FX. We are therefore in a period of calm but with undercurrents of anxiety just below the surface, Be afraid.

Forecast: The end of the dollar pushback is here. We expect the usual Tuesday disappointment as the markets dithers for a day, but then the resumption of the euro upmove, with the others going along. The exception is the yen, which we expect to resume its downward slide to the 150 level.

Tidbit: Trump is aiming to get US hands on lithium and cobalt in Africa. These deals never end well for Africa.

Tidbit: The NY Fed Nowcast for US GDP is 1.7% for Q2—and 2.4% for Q3. As it happens, the Atlanta Fed has 2.4% for Q2. So far.

Tidbit: From Brent Donnelly: “The crypto treasury fad is the 2025 equivalent of the ICO craze and CryptoKitties in 2017, the SPAC bubble in 2021, or the NFT mania in 2022. People were paying $2 for $1 worth of crypto this year, but that seems to have hit a wall now as the supply of these things will remain infinite until the joke becomes unfunny. That seems to be happening now.” Donnelly shows some charts of some names that seem to have hit a brick wall.

But Bloomberg, among others, does not agree: “A relentless wave of optimism is sweeping the nearly $4 trillion crypto market, driven by a frenzy of Washington policy moves accelerating its assimilation into regulated finance. The passage of a landmark stablecoin law and broader legislative momentum have injected new legitimacy into the sector, lifting prices and rekindling risk appetite across digital assets.”

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