Core Viewpoint - The significant downward revision of June non-farm payroll data indicates substantial disruptions to the U.S. economy caused by tariffs, suggesting that the resilience of the U.S. economy should not be overestimated, and the direction of interest rate cuts remains certain [5][9]. Group 1: Non-Farm Payroll Data - In July 2025, the U.S. added 73,000 non-farm jobs, below the expected 110,000, with the previous month's figure revised down from 147,000 to 14,000 [4]. - The unemployment rate in July was 4.2%, matching expectations but up from 4.1% in the previous month [4]. - Average hourly earnings increased by 3.9% year-over-year, slightly above the expected 3.8% [4]. Group 2: Employment Sector Performance - In July, the financial activities sector added 15,000 jobs, education and healthcare added 79,000 jobs, and retail added 16,000 jobs, all showing improvement compared to previous values [6]. - The manufacturing sector has seen negative job growth for three consecutive months, indicating a lack of production willingness among companies [6]. Group 3: Labor Market Dynamics - The labor force participation rate fell to 62.2% in July, down from 62.3% in the previous month, indicating a significant decline in employment willingness among the younger demographic [8]. - The number of unemployed individuals increased by 221,000 in July, contributing to the rise in the U3 unemployment rate to 4.2% [8]. - There was an increase in temporary unemployment by 80,000 and a rise in those completing temporary jobs by 31,000, suggesting an uptick in layoffs [8]. Group 4: Future Economic Outlook - Cumulative downward revisions of 258,000 jobs for May and June, along with the July job addition of 73,000, indicate a clear weakening trend in non-farm employment [9]. - Market expectations suggest that the Federal Reserve may cut interest rates three times in 2025, with an 80% probability of the first cut occurring in September [9].

Group 1 - Jerome Powell emphasizes that the Federal Reserve's decisions on benchmark interest rates are based on economic data and market conditions, not political factors [1][5] - Wilbur Ross believes that Trump's threats against Powell may actually strengthen the Fed's resolve to resist political interference [2][4] - The Federal Open Market Committee (FOMC) faces a complex dilemma, as external political factors may subtly influence its decisions despite a desire to rely solely on economic data [2][7] Group 2 - Powell and other Fed members consider the impact of tariffs on the economy as a key factor in their decision-making process, particularly whether these costs will be passed on to American consumers [2][5] - Ross argues that Powell's career prospects are clear, suggesting he has little motivation to align with the White House's stance [4][5] - Powell has consistently denied that political factors influence his decisions, stating that all decisions are based on what is best for the public [5][6] Group 3 - The FOMC previously cut interest rates in December when inflation was at 2.9%, explaining that the cut was to address economic slowdown risks [6] - Powell's cautious approach has been noted since Trump's presidency, contrasting with previous decisions made under higher inflation [5][6] - The independence of the Fed is a deeply rooted tradition, but it does not mean that decisions are entirely free from external influences [7]

Core Viewpoint - The Federal Reserve Governor Waller voted against the recent interest rate cut, advocating for a 25 basis point reduction instead, arguing that tariffs only cause a one-time price level increase without leading to sustained inflation [1][2]. Economic Data Analysis - Current economic data suggests that monetary policy should be close to neutral rather than restrictive, with a GDP growth rate of 1.2% in the first half of the year and expectations of continued low growth through 2025 [2][3]. - The unemployment rate stands at 4.1%, near the long-term estimate by the committee, and overall inflation, excluding temporary tariff effects, is slightly above the 2% target [2][3]. Labor Market Considerations - Despite a seemingly stable labor market, private sector job growth is nearly stagnant, indicating increased downside risks in the labor market [3]. - The potential for inflation is close to target, and the risks of inflation rising are limited, suggesting that action should not wait for a clear deterioration in the labor market [3]. Policy Recommendations - Waller suggests that if tariffs do not significantly impact inflation, the committee can continue to lower rates at a moderate pace, while also being prepared to pause if inflation or employment exceeds expectations [4]. - There is no justification for maintaining current interest rates, as it poses risks of a sudden downturn in the labor market [4].

Core Viewpoint - The Federal Reserve has decided to maintain the benchmark interest rate in the range of 4.25%-4.50%, amid significant political pressure for a rate cut, indicating a cautious approach to economic conditions and inflation [1][2]. Group 1: Federal Reserve's Decision - The decision to keep interest rates unchanged aligns with market expectations and reflects the Fed's careful consideration of the economic impact of tariffs on inflation and employment [1][2]. - The policy statement showed little change, signaling no immediate intention to lower rates, despite two officials dissenting and calling for a 25 basis point cut [2][3]. Group 2: Economic Indicators and Concerns - Recent economic data presents mixed signals, with Q2 GDP growth at 3.0%, but a slowdown in private sector and consumer demand from 1.9% to 1.2% [4]. - Concerns about inflation persist, as tariffs may push prices higher, potentially keeping inflation above the Fed's 2% target for the fifth consecutive year [3][4]. Group 3: Future Outlook and Diverging Opinions - The Fed faces internal divisions regarding the impact of tariffs on the economy and inflation, with some officials arguing that current rates are too high for the economic situation [6]. - The potential for a rate cut in September hinges on the influence of tariffs on inflation and signs of weakness in the labor market, with investors estimating a two-thirds probability of a cut [5][6].

Core Viewpoint - The Deputy Governor of the Bank of Japan, Shinichi Uchida, stated that the impact of tariffs on the economy remains uncertain [1] Group 1 - The Bank of Japan is closely monitoring the effects of tariffs on economic conditions [1] - There is an ongoing debate regarding the long-term implications of tariffs on trade and economic growth [1] - Uchida emphasized the need for careful analysis to understand the potential risks associated with tariff changes [1]

Group 1 - The Federal Reserve's Williams stated that the impact of tariffs on the economy is still in the "early stages" and that tariff measures are expected to raise the inflation rate by one percentage point during the remainder of 2025 and into 2026 [1] - The U.S. economy is projected to grow by approximately 1% this year, with the unemployment rate expected to rise to 4.5% by the end of the year [1] - The overall inflation rate for June is anticipated to be around 2.5%, while the core inflation rate is expected to be approximately 2.75% [1]

Core Insights - Recent data on U.S. tariff revenue has garnered significant attention, with annualized tariff revenue reaching an astonishing $327 billion, accounting for 1.1% of GDP [1] - Morgan Stanley's report indicates that regardless of whether the tax burden falls on producers or consumers, it will inevitably have a negative impact on economic growth [1] Tariff Revenue Trends - As of June 26, the U.S. customs net revenue reached $27.3 billion, reflecting a rapid increase in tariff revenue [1] - Tariff revenue has shown a clear upward trend, rising from $15.6 billion in April to $22.2 billion in May, and then to $27.3 billion in June [1] - The annualized tariff revenue of $327 billion is equivalent to 65% of the projected corporate income tax for 2024 and 32% of non-withheld personal income tax, indicating a substantial economic burden on individuals and businesses [1] Impact on Corporate Profitability - If companies fully absorb the tariff costs, the profit margin for U.S. non-financial companies is projected to decline from 13.8% to 11.7%, which is below the 15-year average of 12.2% [2] - Even if companies pass some or all of the tariff costs onto consumers, the negative impact on profitability cannot be entirely mitigated [2] Economic Growth Concerns - The tariffs pose a threat to overall economic growth, with Morgan Stanley emphasizing that the substantial tax revenue will not contribute positively to economic expansion [4] - Other economic indicators, such as a mere 1.7% year-on-year growth in air passenger volume as of May, suggest a slowdown in consumer activity, further intensifying economic downward pressure [4] Investment Recommendations - Given the increased economic downside risks, Morgan Stanley maintains its investment advice, suggesting a bullish stance on U.S. Treasury bonds due to potential further declines in interest rates [5] - The firm also recommends a bearish outlook on the U.S. dollar, anticipating a shift towards accommodative monetary policy from the Federal Reserve [5] - Investors are advised to monitor market movements around July 9 and consider increasing long positions in U.S. Treasuries, capitalizing on the rise in yields due to tariff news [5]

Core Viewpoint - Recent U.S. economic data has strengthened expectations for policy easing, with traders increasingly betting on interest rate cuts by the Federal Reserve. However, several Fed officials have indicated the need for more time to confirm that tariff-driven price increases will not persistently elevate inflation [1][4]. Economic Data and Fed Officials' Statements - Fed officials, including Waller and Bowman, suggested that if inflation remains controlled, they might support rate cuts as early as the July 29-30 meeting. The interest rate swap market has fully priced in two more rate cuts this year, with a third cut also being anticipated [1]. - Daly acknowledged evidence that tariffs may not lead to significant or sustained inflation spikes, maintaining an open stance on potential rate cuts in the fall. She reiterated her long-standing expectation of possible rate adjustments starting in the fall [4]. - Initial jobless claims data showed a rise to the highest level since November 2021, indicating more individuals are leaving the job market long-term. However, Daly noted that while the labor market is slowing, there are no significant warning signs of deterioration [5]. Divergent Views Among Fed Officials - Four other Fed officials expressed reluctance to support a rate cut at the next meeting, emphasizing the need for more data before making decisions. Collins mentioned the lack of urgency for rate cuts, while Barkin highlighted the upward pressure on prices from tariffs and the need for clearer signals before adjusting rates [6]. - Goolsbee indicated that if inflation trends toward the 2% target and economic uncertainty diminishes, the Fed might consider resuming rate cuts. He expressed optimism about recent positive data and the manageable impact of tariffs [6]. - Powell stated that if not for the uncertainty surrounding tariffs, the Fed might have already initiated rate cuts based on the downward trend in inflation. He emphasized the importance of waiting for more economic information before making policy adjustments [7].

Group 1 - The Federal Reserve Bank of Minneapolis President Kashkari emphasizes the need for better assessment of tariffs' impact on the economy [1] - The labor market is performing well but is showing signs of cooling down [1] - Companies are still reducing inventory levels ahead of tariff implementations [1]

Economic Situation - The GDP in the first quarter experienced slight declines due to trade impacts, while private domestic final purchases grew by 2.5% [2][3] - The unemployment rate stood at 4.2% in May, with wage growth slowing but still exceeding inflation [2][3] Inflation Situation - The overall PCE and core PCE indicators were slightly above the 2% target, with short-term inflation expectations rising due to tariffs, but long-term expectations remain aligned with the target [4] Monetary Policy - The Federal Reserve maintained the interest rate range at 4.25%-4.5% and continues to reduce its balance sheet; the impact of tariffs will depend on their final levels, and the Fed will balance employment and inflation targets while waiting for more data before adjusting policies [5]