Commentary Corner - Week of June 30-July 4, 2025
All eyes this past week were on the passage of President Trump’s proclaimed “big, beautiful bill” in Congress. After a whirlwind of negotiations and dealmaking with holdouts within the Republican party in both houses of Congress (House and Senate), the bill was finally passed and signed into law on July 4th (coincidentally also Independence Day in the US). Despite Democrats’ best efforts in their united opposition against the bill, it narrowly passed via party lines due to Republican’s slim majority in both chambers.
This colossal piece of legislation will have numerous consequences that will ripple through the economy for years to come. One of its most prominent features is the extension of $4.5 trillion of tax cuts from Trump’s first term in office. It also adds new tax deductions on tips, overtime pay, and auto loans, as well as a $6,000 deduction for adults who earn less than 75k per year. It increases the child tax credit from $2,000 to $2,200 and allows businesses to write off 100% of equipment and R&D costs. To compensate for the tax cuts, the bill will be partially funded by cuts to Medicaid and food assistance, implementing 80 hours/month work requirements for those receiving Medicaid and food stamps. Tax credits for clean energy projects (such as renewable power) will also be rolled back, which may prove to be a headwind for the renewable energy transition process in the coming years (due to expected underinvestment).
According to the analysis of the Congressional Budget Office, the wealthiest Americans would see a $12,000 benefit from this legislation, while costing the poorest Americans $1,600 per year from reductions in Medicaid and food aid. The intention of this bill is to implement trickle-down economics – where an influx of wealth to the richer Americans will “trickle down” into the wallets of everyday Americans through investment in businesses and creation of new jobs. Whether this intention will become a reality, we will have to wait and see.
On the topic of the current economy, the exceptionally strong June jobs report (NFP) will have the Fed continue their “wait-and-see” approach well into the near future. Fed officials are still anxiously observing the market on how the recent trade and immigration policy changes are affecting pricing and hiring decisions by domestic businesses. Fed Chair Jerome Powell has mentioned that the Fed is open to rate cuts, but only if they see a significant slowdown in the labour markets – which has not yet materialized. President Trump has been ramping up the heat on Jay Powell to cut interest rates sooner, mounting a pressure campaign against him in recent weeks, with Trump calling for Powell to resign before his term expires in 2026.
In an ironic counterjab to President Trump, Powell recently commented that the Fed would’ve cut interest rates by now if not for Trump’s tariffs. And so the saga continues…