One of the big questions for markets right now is: who’s really paying for the tariffs? The U.S. government is collecting tariff revenues at a pace of roughly $300 billion per year, but whether those costs fall on importers, exporters, or consumers is still evolving.
Recent data suggests producers are carrying much of the burden. The Producer Price Index (PPI) rose 0.9% in July, the fastest monthly increase in three years, while the Consumer Price Index (CPI) held steady around 3% annually. That means consumers haven’t yet felt the full weight, but companies are facing rising costs — a squeeze that could eventually impact margins, hiring, or even prices on store shelves.
This week will provide fresh insights into the health of the consumer as major retailers report earnings, including Walmart, Target, TJX, Home Depot, and Lowe’s. Since consumer spending makes up about 70% of the U.S. economy, these results will be closely watched.
The spotlight then shifts to Federal Reserve Chair Jay Powell, who speaks Friday at the annual Jackson Hole Economic Symposium. Historically, this has been a stage for signaling policy shifts. Last year, Powell used it to preview a rate cut — and he may do the same this year, with markets watching closely for hints about the Fed’s September meeting.
Why does the Fed remain so focused on lowering inflation? Even a 1% difference in long-term inflation makes a big impact:
At 2% inflation, prices rise about 48% over 20 years.
At 3% inflation, they rise about 80%.
That gap can significantly erode purchasing power, which is why the Fed isn’t ready to declare victory yet.
Bottom Line
Producers are feeling tariff pressure, which could ripple through profits, jobs, or prices if it continues.
Retail earnings this week will give a real-time look at consumer strength.
All eyes on Powell Friday for clues about the Fed’s next move.
As always, if you have questions about how these developments may affect your portfolio, please reach out to your EP Wealth Advisor.