Economic Outlook
By: Russ Colbert
Summer 2025 (Vol. 43, No. 2)
President Trump recently signed the One Big Beautiful Bill Act, which made permanent the tax rate cuts on individuals from back in 2017 as well as business incentives, like bonus depreciation and faster expensing for Research and Development. In addition, the law reduces the growth of welfare spending, that could induce more participation in the workforce. The tax policies that are being extended permanently have already been in place for the past few years. The recent budget cuts are not that large compared to total government entitlement spending but are a plus for the economy. The tariff negotiations have shown improvement over the past three months, and the stock market has settled down and rebounded as the negotiations have calmed down and improved from several countries having worked out tariff deals, and other countries close to working out agreements with President Trump.
It was thought that the tariffs imposed by the Trump administration would cause higher inflation and slower growth, also called stagflation. But so far inflation has risen to an average per month of only around 2.7 % over the past 5 months. We are still waiting for the release of the 2nd quarter GDP figures. Several estimates by economic forecasters seem to think it will come in around a 1.5% annualized growth rate. That is better than the 0.50 percent we had in the 1st quarter. The decline in the 1st quarter was mostly due to an increase in imports (companies front running tariffs) in order not to pay the tariffs before the starting date. We will have to wait a little longer to get the correct 2nd quarter forecast. We like to focus on “Core GDP” which is real GDP excluding government purchases, inventories, and international trade, each of which is volatile from quarter to quarter. Core GDP grew at a 2.5% annual rate in Q1, faster than the average annual rate of 2.2% over the past twenty years. In our opinion the economy was not in serious trouble in the first quarter, and it is not taking off like a rocket in the 2nd quarter.
Now that some of the earlier threatened tariffs have taken effect, companies selling goods in the United States are back ordering more from their domestic suppliers. In addition, the fact that inflation continues to decline should not be a surprise. Of course, tariffs can mean those items being tariffed may cost more. But inflation is a monetary situation, and we believe tariffs don’t change monetary policy. So, if tariff goods cost more, then it means there is less money left over to buy other goods and services, putting downward pressure on pricing those other items, causing lower inflation on those other items. Inflation data over the past three months show prices continue to come down, reflecting a much slower increase than we had last year.
We expect at least one interest rate cut this year. There might even be two. Our Federal Reserve Chairman, Mr. Powell has not been accommodating lately with interest rate cuts. If this occurs, we should see some improvement in the economy including the housing market and stock market. We should see better days ahead.
If you have any questions or need a free portfolio review to keep you on track with your investments or retirement plan, please call me.
Russ Colbert
Senior Portfolio Manager
1-888-878-0001
Advisory services offered through Royal Palm Investment Advisors, Inc., a Registered Investment Advisor.