May 30, 2025
Filed under: General
There are a lot of things going on simultaneously. The good news is that the financial markets are recovering (for now). International stocks are holding the spotlight with solid YTD returns, followed by bonds and then US stocks. So, for many clients and investors, the “emergency” of markets falling is on hold and not a daily consideration.
Meanwhile, Congress is attempting to pass the President’s “Big, Beautiful Bill” which holds some interesting tax planning possibilities especially for those living in higher income/property tax states, small business owners, as well as retirees & tip-compensated workers. What will actually pass remains a mystery, but it should all keep us, and your CPA, busy the rest of this year!
What has fallen a bit off the radar for now are tariffs, as the Administration carries out negotiations with various countries. The Treasury Secretary has already started previewing that not all countries may get their April 2nd reciprocal tariffs reduced unless they are able to meet our country’s demands. Meanwhile, 10% tariffs (besides China) remain in place for most countries, excluding Mexico and Canada who have other deals/considerations. We are approaching the 90-day deadline for trade negotiations (July 9th) and uncertainty remains.
Also critical is that many retailers need to begin making decisions about holiday orders, not knowing what the cost of goods might be by the time the goods are delivered later this year. Perhaps by our June newsletter we will have a better sense of how things may unfold on tariffs. For consumers, it will take longer to understand some of the impact as retailers decide whether to pass on costs directly/partially/not at all to consumers. This is a great time as a consumer to understand where your purchases come from and whether you need to consider forgoing some things or substituting goods as we move farther into the year.
So far, while consumer sentiment has dropped, the economy has not seen the full effects of Federal worker layoffs or consumer purchasing hesitation. According to the University of Michigan Survey of Consumers, consumer sentiment is down almost 30% since January 2025. While that is an important indicator, we need to see whether it begins to translate in terms of reducing purchasing by US consumers – the drivers of our economy. The Federal Reserve is standing pat on interest rates, for now, but is continuing to watch the economic indicators of inflation and employment very carefully.
On the corporate side, it’s been a mixed bag depending on how consumer-driven your business is, and the impact of tariffs & immigration on your business. One of the more creative responses was United Airlines offering two forecasts depending on how things unfold during the year. Again, we are approaching an important time for US businesses that are impacted by the holiday season, as well as the Federal Government’s fiscal cycle. So, stay tuned…
While I have been known to be a modern Monetary Theory “owl” about US budget deficits, even I have concerns about the US Federal budget deficit in future years. As we look ahead, with quickly increasing Federal deficits and debt and no clear policy to reduce that debt, this approach is not sustainable. Increasingly, the largest part of our deficits are programs that will be publicly unpopular to cut and create follow on effects (if people are uninsured or lose vital Social Security benefits), and simultaneously if our debt financing costs go up given the recent Moody’s rating agency downgrade, the math simply doesn’t work. Right now, we fund our US budget by issuing debt. If the debt is more expensive, we begin to enter a cycle that we may not be able to maintain. Hoping that business owners, with less regulation and taxes will invest in growth in our country, works only when there is certainty and confidence – both are lacking right now.
In the end, Americans face some challenging decisions and priorities, but there are options. This is a good time to contemplate where you might be impacted by changes to our societal programs and where you might be willing to make sacrifices. Most likely, there will not be a place for “NIMBY” thinking (Not in My Backyard). Forty-two years ago, a more courageous Congress changed the rules on the “full retirement age” (FRA) for Social Security benefits. That’s a clear option, but there are others, some of which will need to be enacted more quickly to stem the trends we are facing.
Comprehensive immigration laws are critical as well to help bring younger workers (legally) into the system. In short, there are many important decisions that need to considered, and we need to ask more of our representatives. One of my pet peeves in 2025 (showing my age I guess), is the societal need to simplify EVERYTHING – diseases, names of people / businesses / Government agencies. Things are moving so fast that we need to simplify and abbreviate and unfortunately, the issues ahead of us are not simple. The good news is that there ARE options. We have been in difficult situations before (I understand this may be a bit different) AND it is a critical time to be an American who is engaged and reaching out to our representatives to share our views and where we might be willing to be part of the solution(s).
Stay strong and informed.
jared