Macro Signals for August 2025

July 2025 saw the White House’s major tax and spending package cross the finish line while trade talks resulted in a mix bag of new deals and new tarrifs. Meanwhile, US firms and consumers are working to digest the implications of the shifting policy landscape, as cracks in the housing markets draw increased attention to the Federal Reserve’s interest rate policy.

Trade and Geopolitics

Trade deals are being inked with some while new tariffs are being rolled out or threatened to others— but who’s winning and who’s losing?

The White House struck trade deals with both the European Union and Japan in July, ahead of an August 1st deadline for countries to strike trade deals with the United States. However, during the early hours of August 1st, Washington announced a series of new and updated tariffs for dozens of countries, signaling the ongoing global trade drama is far from over.

The US-EU deal will see a 15% tariff applied to EU-origin imports into the United States, down from the 30% fee threatened by the White House earlier in the negotiations. Still, it's well above the 1% tariff previously applied to EU imports and will notably not include a retaliatory tariff by the EU on US-origin imports.

The US-Japan deal will similarly see the US levy a 15% tariff on Japan-origin imports, while both trade deals involve trading partners agreeing to invest at least $500 billion into US markets.

While several European politicians slammed the deal as an EU capitulation to the White House's demands, some economists argue that while the agreement may harm European businesses’ competitiveness, US consumers will likely be the biggest losers of the remaining tariffs.

Matt Kline of The Overshoot explains that given the difficulties of substituting many specific foreign-made goods for American-made alternatives, some higher prices will almost inevitably fall on American consumers through a combination of higher private indebtedness and wider budget deficits.

Further, as economist Ethan Harris notes, a reduction in the US trade deficit implies less domestic financing needed through net capital inflows. However, as previously mentioned, the deals include a commitment by the EU and Japan to invest hundreds of billions into the US economy.

With potentially lower profits arriving from US consumers, there is the glaring question of how America’s trading partners would finance this, and what future domestic political consequences those foreign governments may face as they navigate this conundrum.

Taken together—the new deals, their constraints, and the new tariff threats targeting countries without agreements—it suggests that the Administration is indeed using tariff levels as a bargaining chip in negotiations for new deals, but views tariffs more broadly as a legitimate instrument for raising revenue and correcting trade imbalances.

Tariffs are also being increasingly used as a diplomatic tool. Last month, in a new push to pressure Moscow into advancing peace talks with Ukraine, President Trump floated the idea of "secondary tariffs" against India for its trading relationships with Russia.

Similarly, after several days of clashes with each other, the Thai and Cambodian governments agreed to a cessation of hostilities, reportedly following a White House threat that it would end ongoing trade negotiations with both parties if the hostilities continued. The Canadian government's plan to recognize a State of Palestine was also met with new White House trade threats.

Washington appears to be using tariffs as a way to referee a game that it is also playing in, but who emerges as the winners and losers of the game is less clear. What is more clear is that as officials continue to push a rebalance in US trade aggressively, uncertainty has become the norm, with only doses of certainty trickling from time to time as new deals are inked.

Policy

Developers and affordable housing advocates applaud pro-supply items like LIHTC and Opportunity Zone expansion included in the recently passed “Big Beautiful Bill”, but the fate of other federal programs could cast a shadow on its potential.

In early July, President Trump signed into law his signature domestic economic tax and spending package, dubbed the One Big Beautiful Bill Act (OBBBA).

While economists digest the law's broader implications, the permanent expansions of several pro-supply provisions, such as the Low-Income Housing Tax Credit (LIHTC), were widely seen as a bipartisan win for the rental housing sector.

Long advocated as an essential tool for expanding affordable rental housing, the expansion of LIHTCs would increase the number of homes that could be financed

using tax-exempt bonds. Novogradac estimates that the expansion could result in the funding of an additional 1.22 million affordable rental homes over the next 10 years.

Additionally, the New Market Tax Credit (NMTC), an incentive for investment in underserved communities that had previously been reauthorized every few years, was made permanent, which advocates say will incentivize longer-term investments in those communities. The law also makes Opportunity Zones a permanent part of the tax code and expands them to include new incentives for rural housing development.

However, several of the changes to taxes and spending could undermine renters or disrupt developers' financing strategies. Chief among them are the significant cuts to Medicaid benefits.

As explored in Chandan Economics' analysis, more than one-third of all US renters were enrolled in Medicaid as of 2022, illustrating how some of the most income-constrained renters are likely to be affected. The non-partisan Congressional Budget Office (CBO) estimates that up to 7.8 million people could lose health insurance by 2034 because of the cuts.

On the supply side, some developers will be impacted by the elimination of other credits that were increasingly used as part of the capital stack, such as those incentivizing energy efficiency and renewable energy measures.

However, elsewhere, the return of 100% bonus depreciation and changes to how adjusted taxable income is calculated are expected to drive significant tax savings for commercial real estate owners.

Other analysts note the success of LIHTC expansion will depend partly on the fate of other affordable housing programs that will need to be addressed in the fiscal-year 2026 appropriations bill, including funds related to the HOME federal block grant and the Community Development Block Grant.

Macro & Monetary

Fed policymakers left rates unchanged, but dissent on the FOMC has grown, and markets are increasingly less certain about the short-term path of interest rates.

Fed policymakers held rates unchanged at their July policy meeting, a widely expected decision despite some signs of division about the ideal timing of a potential cut. Two committee members dissented on the July vote compared to a unanimous decision at the June meeting.

Many experts are flagging high interest rates as a significant cyclical headwind to the US housing market. A recent ResiClub analysis found that 36% of the nation’s 300 largest housing markets are currently experiencing year-over-year declines compared to just 10% in January.

Rental housing demand is more shielded from these headwinds, absorbing some of the demand that the purchase market can't meet. However, as Chandan Economics reports, nationwide on-time rent payments have declined for 24 consecutive months through July, signaling that household constraints are increasing.

Fed Chair Jerome Powell expressed the majority view on the committee that inflation remained modestly above target, and that while job growth has slowed compared to one year ago, so has labor supply— leaving the labor market relatively balanced, which is reflected in the relatively low headline unemployment numbers.

Notably, prior to the Fed meeting, although the Fed Funds futures market had anticipated no change in July, it had priced in a 63% chance of a September cut. However, after the Fed Chair defended the committee’s caution on rate cuts and declined to suggest their likely actions at the September meeting, the odds of a September rate cut fell to just 45%.

Many on the committee continue to note the uncertainty around tariffs and their potentially inflationary effects as a reason to leave rates moderately restrictive, barring a deterioration in the labor market.