How will the U.S. economy evolve from here?
The next few quarters hinge on how tariffs, labor supply, and business behavior play out. We’ve developed a timeline to help unpack how the economy is likely to evolve.
Tariffs and inflation
Tariff-related price pressures are beginning to show up in the data, but the impact so far has been mixed. June inflation was modest, with isolated increases in categories like electronics and apparel, offset by declines in shelter and vehicles. That said, we see risks building as we move into the fall. Prices of consumer goods, which are sensitive to tariffs, are firming. The upcoming inflation prints – especially in July and August – will be critical for shaping the Fed’s next move.
Tax and deregulation
Tax cuts and deregulation will likely give business sentiment a lift in the near term. But there’s a risk that the spending and hiring, which may have resulted from tax cuts and deregulation, are put on hold due to potential cost pressures and policy uncertainty.
Immigration and labor
Labor market data is starting to reflect the impact of tighter immigration policy. Job growth has slowed, and labor force participation is softening. At the same time, reduced labor supply is helping keep wage growth firm. These dynamics may cap overall GDP growth, but they also raise the risk of persistent wage inflation – adding another layer of complexity for the Fed as it weighs when to cut.
We think the Fed could step in with a rate cut by September or October, but that will depend on how sticky inflation proves to be and whether labor conditions ease further.
Portfolio strategy
Uncertainty – from tariff-driven inflation, shifting Fed expectations, and a tightening labor supply – has become the defining market backdrop. Rather than sitting on cash and “waiting for clarity,” we think investors can use three guiding principles to keep portfolios both resilient and return-seeking.
1. Let income do the heavy lifting
2. Build inflation and volatility resilience
3. Diversify beyond the conventional (i.e. U.S. public markets)
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This material represents an assessment of the market environment as of a specific date and is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any investment product or any issuer or security in particular.
Prospective investors should be aware that investments in alternative investment strategies are suitable only for qualified investors or individuals with adequate financial resources who do not require liquidity and who can bear the economic risk, including the potential for a complete loss of their investment.
The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.
This material contains general information only and does not take into account an individual's financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
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