This Week in the Economy: Federal Reserve Stubbornness Mars Big Beautiful News
The pieces are in place for the U.S. economy to enter a major boom period. Unfortunately, the central bank appears determined to stop that from happening.
Guest post by economist Robert Genetski, Ph.D.
Unlock exclusive financial insights and expert analysis to navigate market trends and make informed investment decisions: subscribe@classicalprinciples.com.
Providing great news for the U.S. economy and a major victory for President Donald Trump, Congress was able to cobble together the One Big Beautiful Bill, and the president signed it into law yesterday.
Further good news is our estimate that federal spending in fiscal 2026 will be $6.8 trillion, down $500 billion from the Congressional Budget Office’s estimates. (The CBO’s estimates are always wrong and biased in favor of higher tax rates.—Ed.) The final number might be even better if this year’s spending trends continue to run $200 billion below the CBO’s estimates.
The key to sound federal finances is slowing federal spending. So far, it appears Trump and the Congress are making progress in getting this done.
The budget reconciliation bill adds incentives to bolster the economy and permanently locks in current tax rates. Trump also announced a trade agreement with Vietnam and indicated more agreements are coming in the weeks ahead.
That is all good news. The jobs market and the Federal Reserve have plenty of room for positive responses to the changes. A significant slowdown in jobs was reported for June. The Labor Department reports private payrolls increased by only 74,000, while ADP reported a decline of 33,000 private jobs. The number of full-time jobs has not increased during the past three months.
The weakness in the job market provided no immediate relief from higher interest rates. Financial markets show a 93 percent probability the Fed will keep rates unchanged going into September. The odds are 67 percent for a rate cut in September.
(Under ordinary conditions, the Fed’s persistence in its tight-money policy would bring on a recession, given that inflation has essentially halted, but Trump’s reduction of federal-government pressure against domestic economic producers is increasing economic output. The spending cuts Dr. Genetski mentions are exactly what we needed to reverse the remnants of Bidenflation entirely. In my view, the Fed’s current policy is doing great economic harm.—Ed.)
Yesterday’s June business surveys agreed that the economy continues to grow at a slow pace. The surveys also indicate a belief that inflation remains a serious problem.
There are no significant economic reports due next week. This is the time of year to take a break and spend time with family and friends and enjoy the blessings God has given us, and have a happy and fun-filled last two days of the Independence Day weekend.