How Will Tariffs & Debt Affect the Economy?

Jun 6, 2025

Kathy Jones and Liz Ann Sonders dive into the complexities of tariffs and their ripple effects on employment and manufacturing. They discuss the difficulties in predicting tariff revenues and how political changes could impact national debt. Key economic indicators like jobs and inflation are scrutinized, revealing a connection between tariffs and consumer behavior. The conversation also highlights the surprising rise in labor costs alongside declining productivity, raising questions about government data accuracy.

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INSIGHT

Tariffs Impact Economy and Employment

The effective tariff rate is about mid-teens and remains uncertain due to legal challenges and trade talks.
Tariffs are contributing to inflation pressures and beginning to affect employment numbers negatively.

INSIGHT

Budget Bill and Deficit Impact

The proposed budget bill may add $2.4 to $4 trillion to the deficit over 10 years, mainly depending on tariff revenue assumptions.
This large deficit increase will demand significant financing in the treasury and debt markets.

INSIGHT

Treasury Market Dynamics and Outlook

Longer-term bond yields are driven by supply and demand and large institutional buyers, with more volatility due to fewer participants.
Treasury market uncertainty persists until clearer economic and inflation data emerges, potentially prompting Fed rate cuts.

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In this week’s episode, Kathy Jones and Liz Ann Sonders discuss the current state of tariffs and the ongoing trade war, the implications of budget bills on the economy, and insights into inflation and the labor market. They explore how tariffs are affecting economic indicators, the challenges in estimating tariff revenue, and the potential impact of upcoming economic reports on Federal Reserve policy.

You can read Kathy’s midyear report, “Fixed Income Outlook: Cool and Cloudy” on Schwab.com.

On Investing is an original podcast from Charles Schwab. For more on the show, visit schwab.com/OnInvesting.

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