Thoughts on the Market

Tariffs’ Impact on Economy and Bond Markets

12 snips
Aug 13, 2025
Join Michael Gapen, Chief U.S. Economist, as he delves into the nuanced impact of tariffs on the economy and the bond markets. Gapen discusses how ongoing negotiations have shifted investor focus, with implications for inflation and consumer spending. He reveals how some companies are absorbing costs rather than passing them onto consumers, and examines the potential for Federal Reserve interest rate adjustments in response to economic growth scenarios. The conversation highlights the intricate link between tariffs, fiscal policy, and future financial outcomes.
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INSIGHT

Tariff Uncertainty Has Narrowed

  • The effective U.S. tariff rate rose from ~3% to 16% in 2025, narrowing the range of likely outcomes as some deals reduce near-term uncertainty.
  • Investors should stop chasing headlines and instead assess the economic impact of implemented tariffs.
INSIGHT

Early Tariff Pass-Through Confirmed

  • Morgan Stanley's model and 2018-19 history suggested tariff-driven price effects would start appearing in June and grow into late summer and fall.
  • Core goods prices rose 0.2% in June and July, indicating pass-through has begun but magnitude remains uncertain.
INSIGHT

Goods Inflation Is Uneven

  • July CPI showed core goods rising modestly with stronger prints in household furnishings and used cars, consistent with tariff effects in goods.
  • Some categories like new cars and apparel showed less impact, so timing and scope of pass-through vary by sector.
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