Some weeks are quiet, and some weeks it’s everything, everywhere, all at once. This past week the U.S. economic calendar was already full, with a flurry of last-minute trade announcements and new tariffs added on top. Equity markets declined on Friday, following the tariffs announcement and a weak jobs report. 

Things started off on a decent footing earlier in a week, with the GDP report showing that the U.S. economy grew by 3.0% (annualized) in Q2 after contracting 0.5% in the previous quarter. Still, this quarter-to-quarter volatility reflects the surge and then reversal in imports as companies rushed to ship ahead of tariffs. Smoothing though the volatility, growth was 2.0% over the first half of 2025, a step down from the 2.5% in the second half of 2024. Excluding trade, inventories, and government spending, core domestic demand—measured by sales to private domestic purchasers—rose just 1.2% in Q2, the slowest pace in 2.5 years.

Consumer spending remained modest at 1.4% annualized. That is up from Q1’s weak 0.5% pace, but compared to last year, spending has clearly slowed amid rising uncertainty. Monthly data showed a soft end to the quarter, with real spending up just 0.1% in June following a 0.2% decline in May. Services spending has stayed sluggish for three straight months.

Consumer spending is likely to stay weak through the second half of the year. Core goods prices are rising again (Chart 1), and inflation pressures are expected to build, particularly considering the latest tariff announcements. The 10% universal tariff remains in place for countries with the trade deficit with the U.S., but countries with a trade surplus now face rates of 15% or more. Tariffs on non-USMCA compliant imports from Canada have been raised from 25% to 35%. Mexico got a 90-day extension, while a deal with China remains pending ahead of an August 12th deadline.

On top of rising prices, the labor market is expected to weaken. Indeed, Friday’s payroll report was a reminder of how if things seem too good to be true, they usually are. After substantial downward revisions to the prior months’ numbers, job growth has slowed more sharply that previously reported. Payrolls were virtually flat in May and June, and only rebounded modestly in July (Chart 2). At the current pace, job growth will not be enough to prevent the unemployment rate from increasing, leaving consumer fundamentals more fragile.

While this week’s FOMC meeting was largely as expected with the FOMC leaving rates steady, changes are in the air. Two of the board members – Bowman and Waller – dissented in support of a rate cut. It increasingly looks like they will be joined by others in September. Stability in the labor market has been a major factor keeping the Fed on the sidelines through this year. But with that narrative now shattered, the prospect of a September cut is looking increasingly likely. Following this morning’s release, Fed futures have priced in an 80% probability of a September cut, up from the near coin toss priced prior to this morning’s release.