This week’s economic calendar was light, with highlights including a modest rise in consumer confidence, a drop in mortgage rates, the State of the Union Address (SOTU), and ongoing trade policy uncertainty. In his SOTU, President Trump reaffirmed support for tariffs as a government revenue tool. The U.S. has imposed 10% duties on imports from all countries for 150 days under Section 122, pivoting quickly after last week’s Supreme Court decision striking down the administration’s use of tariffs under the International Emergency Economic Powers Act (IEEPA) (see report). The President subsequently threatened to raise the 10% blanket tariff to 15%, but no executive order has been signed. 

Questions also remain about whether the $133 billion in IEEPA revenues—60% of total U.S. tariff revenue in 2025—will need to be refunded. The Court did not decide on this, so further litigation is likely. The potential revenue loss could push U.S. Treasury yields higher, as tariff revenue was expected to offset much of the One Big Beautiful Bill Act’s cost. However, markets appear unconcerned, either expecting the administration to find other ways to secure tariff funds or anticipating a lengthy litigation process. So far only a small fraction of importers has filed lawsuits for refunds.

Cost-of-living concerns were also addressed in the speech. The president noted that prices for some key goods have moderated, even as prices broadly continued to rise. He urged Congress to address healthcare costs and highlighted efforts to lower prescription drug prices. Housing affordability was mentioned, with a renewed call to restrict large institutional ownership of single-family homes. On that note, mortgage rates continued to ease this week. The average 30-year fixed rate fell to 5.98% on Thursday—the first sub-6% reading in over three years. Lower rates and a steady labor market should help boost home sales, but without broader affordability and supply improvements, a major turnaround in the housing market is unlikely (see report).

Cost-of-living worries and a slowing labor market remain top of mind for consumers. While consumer confidence index edged up in February, rising from 89.0 to 91.2, the gain was due entirely to improved expectations. Meanwhile, households’ views of current conditions softened further, with the present situation subcomponent declining to its lowest level since the pandemic, pointing to persistent pessimism about the job market. The gap between the share of households saying jobs are plentiful versus hard to get has been narrowing, weighing on confidence (Chart 1).

Consumer spending momentum faded at the end of last year (Chart 2), suggesting a weak handoff for Q1 and likely slower spending growth, before a possible Q2 pickup as higher tax refunds arrive. Next week, February’s jobs report should show labor market stabilization, while retail sales and ISM indexes will offer insights into consumer and business activity. We expect these indicators to show the economy continues to chug along despite the uncertainty, keeping the Fed on hold for now, especially with tariff policy in flux and inflation still above target.