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.

This article is general market commentary, not investment advice or a personal recommendation. The value of investments can fall as well as rise, and past performance is not a guide to future returns. Written and reviewed under our editorial standards.