Fed Preview 7/30/2025

Today's July 30, 2025 Fed watch is all about the possible dissents to maintaining the discount rate from those governors who want Trump to nominate them to replace Jerome Powell as the Chair in May 2026. Currently sitting Fed Governors Waller and by signaling they will lower interest rates dramatically to finance the huge deficits.

Overall, earnings has been strong, lots of beats, approximately 77%, over the long term average;

Lipper IBES raised 2Q2025 S&P 500 EPS forecast growth slightly in last two weeks, although multiple expanded more quickly, on S&P 500 record prints almost daily.

GDP printed at 3% today, over the -0.5% in 1Q2025, with real final expenditures down 1.2%, from 1.9%. PCE inflation was down 2.1% from 3.7%, with core down to 2.5%.

Last week wholesale goods was positive & initial unemployment was lowest in a month.

United States still has an X date around September 30, 2025, when Fed runs out of money to operate.

Treasury said incremental focus will be on short-term issuance, because Treas. Secretary, Bessent is betting Trump will get Fed rate cuts, meaning it is better to finance the growing US deficit at these relatively higher rates over the short term, now, because the Treasury’s expectation is that longer term rates will be lower in mid to late 2026.

Key macro questions is, (a) where will tariff data show up, in (i) higher prices to consumers, eg inflation; or (ii) absorbed costs by corporations, eg lower earnings?

The Bull case for stocks and US fiscal accounts is that tariffs stimulate US exports on "opening economies," raise material revenue, improve US fiscal accounts and stimulate the US economy.

Foreign imports in 2024 were about $6 trn. At a 15% tariff rate, tariff-related tax collections could be a maximum of $900 bn. Of course, tariffs will disincentivize imports and the actual amount collected is likely to be less.

2024 budget deficit was $1.8 trn. US GDP was $28.5 trn in 2024, with total taxes collected about $5.1 trn [fiscal year end Oct.].

Friday's job report will be in the macro-economic focus after Fed today

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