BND Scope: Issue 4 – Signals and Standoffs in the U.S. Economy

From inflation surprises to geopolitical shifts in investment, June is marked by delicate financial balances. As political decisions, market resilience, and monetary caution intersect, strategic insight remains the sharpest guide.

Inflation cools, but caution prevails. The PCE inflation index rose by just 0.1% in April, with the annual inflation rate at 2.1%, its lowest level of the year. Core inflation held at 2.5%. Slowing consumer spending and rising savings are clear signs of deceleration. Yet, due to the ongoing impact of sweeping tariffs under the Trump administration, the Federal Reserve remains cautious.

Rate cut hopes are fading. Despite mounting pressure from the White House and a softening labor market, the Fed is staying firm. Expectations for a summer rate cut are fading, as decision-makers remain wary of stagflation risks. Trump continues to criticize Chair Powell harshly. Recently, he stated, “A good Fed Chair cuts rates” and hinted at a pending decision. These remarks fueled speculation that Powell might be dismissed, but Trump later clarified, “I won’t fire him, but I may find another way,” even calling Powell a “numbskull.”

Trade and Growth: Global Pressure Points

Monetary Policy: Tariff Pressure on the Fed

OECD and World Bank warnings. Both institutions cut U.S. growth forecasts to 1.6% and 1.4%, respectively, citing rising tariffs and political uncertainty. The OECD projects inflation could spike to 3.9% by year-end, while the World Bank warns of a historically weak decade for global growth.

Investor Behavior: Following Smart Capital

Buffett boosts T-bills. Berkshire Hathaway now holds 5% of all short-term U.S. Treasury bills, signaling a broader shift to safer, short-duration assets. Ultra-short ETFs have become top-performing instruments of 2025.

Wall Street rebounds on tech and trade hopes. Stocks rose in early June, led by Nvidia and chipmakers, on renewed optimism for trade talks. Despite falling factory orders, investor sentiment improved—but recession risks still loom.

Temu’s U.S. decline demonstrates how trade policy can swiftly disrupt e-commerce. Daily users plunged nearly 50% following the end of the 'de minimis' tariff exemption.

Section 899 and capital flight. Part of the One Big Beautiful Bill Act, proposed Section 899 marks a shift in U.S. international tax policy. It targets “unfair foreign taxes” like the OECD’s Pillar 2 UTPR, Digital Services Taxes (DSTs), and Diverted Profits Taxes (DPTs). The provision increases income and withholding taxes on payments linked to countries practicing such taxes and expands the BEAT regime.

Tax rates would rise in 5% increments annually, up to a 20% surcharge. Investment funds like ETFs and pension funds with exposure to affected jurisdictions could face significant costs. The ICI warns this could lead to rapid capital outflows unless the bill is revised.

Laws That Reshape Capital

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New U.S.-China tariff agreement. A recent deal pegs U.S. tariffs at 55% and China's at 10%, aiming to de-escalate tensions. While markets welcome the clarity, concerns over competitiveness and inflation persist.

Immigration Policies Could Sway the Fed

According to Morgan Stanley, restrictive immigration policies are shrinking the labor force, artificially tightening the job market. This could prompt the Fed to cut rates earlier than expected. Trump’s immigration strategy is now a key factor shaping long-term GDP outlooks.

Closing Insight: Seeking Clarity in Complexity

With central bank caution, legal risk, and capital realignment in play, opportunity and danger are intertwined. Strategic, selective investors are poised to succeed.

At BND Consulting, we help make developments in the U.S. economy clearer and easier to navigate. Let’s chart your path forward together.