Summer Economic Uncertainty Looms as Trump Policies and Tariffs Take Effect

This summer is poised to be a pivotal period for the economy and financial markets, with several significant events and data releases expected to shape the trajectory of both. By the fall, the effects of President Donald Trump’s tariffs and fiscal policies should become more apparent, providing the Federal Reserve with greater clarity to make informed decisions on interest rates.

One of the key events to watch is the passage of Trump’s so-called One Big Beautiful Bill, which includes his tax cuts and spending priorities. The bill has a July 4 deadline, but the exact timing and provisions remain uncertain due to the narrow majorities in both the House of Representatives and the Senate. The bill’s impact on the economy and financial markets will be closely monitored, with expectations that tax cuts will boost economic growth and stock market performance, while potentially increasing U.S. debt and Treasury yields.

Another critical factor is the debt ceiling, which Treasury Secretary Scott Bessent has estimated will be reached by mid to late summer. Failure to raise the debt limit could result in a U.S. default, sparking a global financial meltdown. The One Big Beautiful Bill is expected to increase the debt ceiling by trillions of dollars, but Congress must act before the Treasury Department’s extraordinary cash management measures are exhausted.

Trade deals and tariffs will also play a significant role in shaping the economy this summer. The Trump administration has indicated that major trade deals are imminent, but the 90-day pause on tariffs is set to expire on July 9. A sudden return to high tariffs could deliver another jolt to Wall Street, which had been expecting duties to settle at manageable levels. The impact of tariffs on inflation will heavily influence the Federal Reserve’s decision on interest rates, with policymakers needing more data to be confident that inflation is on the right track.

Corporate earnings reports for the second quarter, starting in July, will provide a more comprehensive view of how tariffs and economic uncertainty are affecting profits and the outlook for profits. Companies that rushed to stock up on imports earlier in the year to get ahead of tariffs may now face higher costs and shrinking profit margins. The White House’s fiscal policies, including tax cuts and changes in spending, will also sway earnings and impact Corporate America and consumers.

Finally, geopolitical tensions in the Middle East could add another layer of uncertainty to the economy. A tenuous ceasefire between Israel, Iran, and the U.S. has sent oil prices lower, but renewed fighting could set off another surge in crude prices, sapping consumers of spending power and reigniting inflation. This could further complicate the outlook for Fed rate cuts and the economy.