NEW YORK, July 25, 2025
Tariffs Loom as US Economy Shows Mixed Signals
Tariffs are likely to increase rather than decrease, despite ongoing trade talks, with a significant week ahead for U.S. economic data.
- The U.S. economy is cooling but not collapsing, with inflation data expected to remain elevated due to tariffs.
- The Federal Reserve is unlikely to cut rates in September, with a potential 50 basis point cut anticipated in December 2025.
- Eurozone GDP figures may face a reality check, with potential negative impacts from U.S. trade developments.
- Poland’s inflation is expected to fall, supporting further rate cuts by the National Bank of Poland.
Is the August 1 tariff deadline different from past ones? Perhaps not, but the likelihood is tariffs will rise. This week is crucial for the U.S. economy, with key data releases set to shape market expectations.
Deal or Delay: A Familiar Dance
After multiple tariff delays, another postponement on August 1 seems plausible. However, President Trump is formalizing deals with trading partners, including a potential agreement with the EU similar to Japan’s, offering carmakers a partial reprieve from the current 25% levy.
These deals largely formalize the existing situation, possibly with a slightly higher baseline tariff. They secure tariff revenue for the U.S. while mitigating immediate retaliation. Trading partners aim for stability by removing the threat of escalating trade actions.
The longevity of these deals is uncertain. As the UK has experienced, such agreements leave questions unanswered, particularly regarding potential U.S. pharmaceutical tariffs. For the EU, this represents a significant portion of its exports to America. Such a move could increase retaliation risks and further escalate tensions.
Fed on Hold Amidst Inflationary Headwinds
The U.S. jobs market appears solid, though underlying foundations may be weaker. Downward revisions to past payroll figures are expected this summer. Upcoming data is unlikely to signal an immediate need for interest rate cuts.
Markets are pricing in a September rate cut, but this depends on benign inflation data. However, July and August inflation figures are expected to be influenced by tariffs, suggesting that the Federal Reserve will remain cautious. A 50 basis point rate cut is forecast for December 2025, marking the Fed’s first move of the year.
Eurozone and Eastern European Outlook
This week brings important eurozone data. Flash GDP for the second quarter is expected to cool from a strong first quarter, partly due to U.S. import front-loading. April saw a dip in production and exports, though May showed a surge, particularly in pharmaceuticals.
Inflation figures are due Friday. While current inflation is seen as under control, the focus remains on the U.S.-EU trade relationship as the August 1 deadline approaches.
Poland
July flash CPI data is expected to reinforce expectations for further rate cuts by the National Bank of Poland. Inflation is anticipated to ease significantly, falling close to the NBP’s target of 2.5%. A 50 basis point rate cut is forecast for September, followed by another 25 basis point cut.
Hungary
Preliminary second-quarter GDP data is expected to show stagnation, narrowly avoiding a technical recession. Industry and agriculture were held back by global demand and weather, respectively, but services and construction should counterbalance these. The raw year-on-year figure is likely to be negative.
Czech Republic
The industrial PMI is expected to remain in expansionary territory, indicating a gradual recovery in manufacturing. The Czech economy likely continued its solid growth in the second quarter, supported by consumer spending and construction.
Bottom Line: Expect no Federal Reserve rate cuts until December. When they do occur, they could be substantial.
