In this market update, Chris Vizzi and Kelly Clyde of South Coast sit down with Fadel Lawandy from Chapman University for a fast-moving discussion on some of today’s most pressing economic issues. They explore why tariffs have become a central part of U.S. geopolitical strategy, how they’re generating billions in revenue, and what their long-term economic impact might be. The conversation clears up common misconceptions about whether tariffs are inflationary, explaining why the current inflation cycle has more to do with money supply growth and fiscal policy than trade measures. They also examine how the Federal Reserve’s fight against inflation is shaping interest rate expectations and what that means for businesses and investors in the months ahead. Finally, they look at how global supply chains are shifting as companies pivot away from China, and what these changes could mean for manufacturing and consumer prices. It’s a candid, data-driven look at the forces moving markets—and the practical takeaways investors need to navigate what’s next.
Economic & Market Update – Q3 2025
Overview
The U.S. economy has remained resilient but is navigating a more complex backdrop. Tariffs have emerged as a central economic and political tool, influencing trade flows, corporate decision-making, and inflation dynamics. Markets are adjusting to mixed signals—solid underlying growth in some sectors, cooling in others—as investors weigh the trajectory of interest rates, inflation, and earnings.
Tariffs & Trade Policy
- Negotiation Tool & Revenue Source: The current administration is using tariffs both to influence geopolitical relationships and to generate revenue without directly raising taxes.
- Global Impact: Tariffs now target a wider range of countries, including China, Mexico, and Canada, affecting supply chains and shifting sourcing toward countries like Vietnam.
- Revenue Growth: Monthly tariff collections have been significant, exceeding $27 billion in June and rising in July.
- Long-Term Play: Tariffs are expected to remain a fixture in U.S. trade policy regardless of election outcomes, though approach and scope could shift.
Inflation & Policy Environment
- Tariffs vs. Inflation: Tariffs act as a one-time price adjustment rather than an ongoing driver of rising prices, whereas inflation reflects sustained upward pressure.
- Key Drivers: The recent inflation cycle is more directly tied to rapid expansion in the
money supply (M2) and fiscal deficits than to tariff policy alone. - Fed Stance: The
Federal Reserve remains in a wait-and-see mode, balancing slowing price growth against risks of re-acceleration. - Lag Effect: Inflation trends often respond with an 18-month delay to monetary policy changes.
Labor Market Dynamics
- Still Healthy but Cooling: Unemployment remains historically low, but signs of slower job growth are emerging.
- Labor Supply Considerations: Post-COVID immigration growth helped expand the labor force, but potential policy changes could reduce future labor availability and put upward pressure on wages.
Markets & Earnings Outlook
- Equity Rotation: While mega-cap tech stocks have seen pullbacks, other sectors are showing resilience.
- Earnings Outlook: Corporate earnings have been solid, but forward estimates may prove optimistic given potential margin pressure from higher input costs and softer demand in some areas.
- Valuation Sensitivity: Elevated valuations mean earnings misses could trigger sharper stock price reactions.
Investment Positioning & Opportunities
- Diversification Benefits: Reducing over-concentration in the most crowded sectors can help manage volatility.
- Alternative Markets: Real estate, infrastructure, and private investments continue to provide potential for income, inflation protection, and reduced correlation to public markets.
- Fixed Income Role: Yields remain attractive, offering income and defensive positioning in a more uncertain equity environment.