Month: September 2025

The Boston Fed has released a “Current Policy Perspective” titled Who Will Pay for Tariffs? Businesses’ Expectations about Costs and Prices by Philippe Andrade, Alexander M. Dietrich, John Leer, Xiao Lin, Raphael S. Schoenle, Jenny Tang, and Egon Zakrajšek:

Amid evolving global trade policy and rising tariff uncertainty, understanding how small and medium-sized businesses (SMBs) form expectations about future costs and adjust their pricing is critical for assessing how the recently imposed tariffs on US imports could impact consumer prices. To that end, this brief analyzes several waves of a survey of owners and other decision-makers at a nationally representative sample of US SMBs. It focuses on waves conducted during the period of December 2024 to August 2025.

Key Takeaways:

• From December 2024 to April 2025, the share of SMBs expecting larger tariffs increased considerably; expectations about the size of future tariffs also increased over time.
• In the August 2025 survey wave, SMBs whose costs are affected by the new tariffs reported paying an average tariff rate in July 2025 (11.4%) that was nearly double the average rate they paid in January 2025 (6.5%).
• SMBs that believe the new tariffs will persist for a year or longer expect to pass through as much as three times more of their cost increases into consumer prices compared with SMBs that believe the new tariffs will be short-lived.
• A back-of-the-envelope calculation suggests a 0.75 percent near-term increase in core consumer prices stemming from recent tariff increases on directly imported consumer goods.

Good news from America! The American consumer is still spending:

The US economy’s comeback in the second quarter was just revised higher again, and economists estimate that momentum carried on in the third quarter, underscoring the resilience of the world’s largest economy.

Gross domestic product, the broadest measure of economic output, rose at an annualized rate of 3.8% from April through June, the Commerce Department said Thursday in its third and final estimate. That’s significantly higher than the 3.3% rate reported in the second estimate, and well above the 3% initially reported.

GDP was revised higher largely due to new additional data on consumer spending. Personal consumption expenditures rose at an annualized pace of 2.5% in the second quarter, according to the third estimate, up sharply from the second estimate’s 1.6%.
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The Federal Reserve Bank of Atlanta estimates that GDP continued to power through at a robust pace in the third quarter, forecasting third-quarter GDP to register at a solid 3.3% rate.
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Against the odds, retail sales, which comprise a sizable chunk of overall spending, rose 0.6% in August from the prior month, according to Commerce Department data, following July’s 0.6% gain.

Canadian GDP was up for different reasons:

Real gross domestic product grew in July for the first time in four months and by slightly more than expected, suggesting the economy will likely avoid a recession this year as U.S. tariffs batter key Canadian sectors.

Statistics Canada reported Friday that the 0.2-per-cent increase in real GDP was largely driven by growth in good-producing industries. The mining, quarrying and oil and gas extraction sector led growth in July, expanding by 1.4 per cent.
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Motor vehicle parts and motor vehicle manufacturing expanded by 10.5 per cent and 9.1 per cent respectively in July, which coincided with an increase in exports of those goods that month, the Statscan report noted.

However, activity in iron and steel mills and ferro-alloy manufacturing was down by about 25-per-cent since February, before the U.S. imposed a 25-per-cent tariff on steel imports in March.

The industry group in July experienced its steepest decline since April 2020, contracting by 19.1 per cent after U.S. President Donald Trump doubled the tariff rate to 50 per cent in June.

Lisa Cook got some more high-profile support today:

Federal Reserve Governor Lisa Cook has the support of every living former chair of the central bank’s powerful Board in her legal battle with President Donald Trump, who tried to fire her last month based on unproven allegations of mortgage fraud, according to an amicus brief filed to the Supreme Court Thursday.

An appeals court earlier this month kept Cook in her post through a preliminary injunction while her lawsuit challenging Trump’s firing attempt moves forward — just days before the central bank’s September policy meeting. The administration appealed that decision, and is now being considered by the nation’s highest court.

In response to the appeal, Cook on Thursday said firing her would be a “death-knell” for central bank independence, urging the Supreme Court to deny the administration’s emergency request to remove her while the litigation proceeds through the lower courts.

Former Fed chairs Alan Greenspan, Ben Bernanke and Janet Yellen warned against overturning the injunction, stating that it would “threaten” the Fed’s independence of politics and “erode public confidence in the Fed.” The brief was also signed off by some Republicans who once served in high-ranking government roles, such as former Treasury Secretary Henry Paulson and former Council of Economic Advisers Chair Glenn Hubbard.

I have updated the FFN.PR.A and FTN.PR.A posts with the yields as of 2025-9-23.

PerpetualDiscounts now yield 5.71%, equivalent to 7.42% interest at the standard conversion factor of 1.3x. Long corporates yielded 4.86% on 2025-9-17, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) remains at the 255bp reported September 17.