Tariffs, Inflation, and the Fed: The Macro Forces Driving Markets

July’s inflation data came broadly in line with expectations:

• Headline CPI: +0.2% m/m

• Core CPI: +0.3% m/m

Energy prices (-1.1%) helped restrain the headline figure, while airfares (+4.0%) and medical services (+0.8%) kept core inflation elevated. Core goods rose a modest +0.2% m/m.

However, the underlying trend is shifting.

The downward momentum in core inflation appears to be losing steam as tariffs filter into consumer prices. The effective tariff rate reached around 9% in July and, following the latest increases, is now closer to 18%. The core inflation is expected to end 2025 around 3.5%, up from 3.1% in July.

The tariff revenue surge is unprecedented:

• July: $29.6B (+300% y/y), an all-time monthly record

• Annualised pace: $350B, exceeding US corporate income tax receipts

• Since March: Over $100B collected, even with a 90-day tariff pause

Yet the fiscal picture remains challenging. The US posted a $291B budget deficit in July, with total outlays of $630B. Tariff revenue covered only around 10% of the shortfall, underscoring that spending discipline remains essential to narrowing the deficit.

Market implications:

• Market participants are expecting the Federal Reserve to begin rate cuts at the September FOMC meeting, with 25 bps reductions likely at each meeting through January (total of 100 bps).

• This backdrop (elevated tariffs, persistent fiscal expansion, and a pivot to easier policy) is supportive for gold and Bitcoin, both of which have strengthened.

• For equities, lower rates may provide near-term support, but trade-related cost pressures could weigh on margins.

  
  

Our view at Intrasia Wealth:

The combination of record trade revenues, large-scale government spending, and an impending policy shift is creating a complex but opportunity-rich environment. Disciplined, active positioning will be critical to navigate the interplay between tariffs, inflation, and interest rates in the months ahead.