Date: July 31, 2025
Period Covered: July 1-31, 2025
Economic Growth
U.S. GDP expanded 3.0% in Q2, beating consensus estimates of 2.4%. The acceleration came primarily from business investment rather than consumer spending, suggesting companies are building capacity ahead of potential supply disruptions. Treasury Secretary Lutnick attributed the performance to "Trump-era policies," though the data reflects investments initiated months earlier.
The growth composition matters more than the headline number. Business fixed investment rose 8.2% quarter-over-quarter, the fastest pace since 2021, while consumer spending grew just 1.8%. This pattern suggests companies are preparing for a prolonged period of trade uncertainty by investing in domestic production capacity.
Trade Policy
Trump's tariff strategy dominated market sentiment throughout July. The administration imposed a 15% tariff on EU exports while extending trade talks with China beyond the August 1 deadline. Legal challenges are mounting - the Federal Circuit Court is reviewing whether the International Emergency Economic Powers Act provides sufficient authority for the tariff regime.
The market impact has been asymmetric. European equities underperformed U.S. markets by 4.3% in July, while Chinese ADRs fell 8.7%. Conversely, domestic industrial companies outperformed by 11.2%, with particular strength in manufacturing automation and logistics.
Monetary Policy
The Federal Reserve maintained its restrictive stance despite strong growth data. Chairman Powell emphasized the Fed's "obligation to prevent inflation" in testimony before Congress, signaling no immediate policy changes. The 10-year Treasury yield traded in a tight range around 4.30%, indicating markets expect rates to remain elevated through year-end.
Fed officials appear more concerned about wage inflation than headline economic growth. With unemployment near historical lows and labor force participation stable, wage pressures could accelerate if the current growth trajectory continues.