Passage of tax and debt ceiling bill provides much-needed clarity, but tariff uncertainties continue to cloud the view
Last week brought more clarity on government policy with the passage of the One Big Beautiful Bill Act (OBBBA), which also raised the debt ceiling, removing two major sources of policy uncertainty that have plagued sentiment this year. Although the near-term economic lift from the OBBBA is modest, the bill provides long-term clarity on tax policy, particularly for small businesses, farms, and high-income individuals in high-tax states. Resolving the debt ceiling lowers fiscal disruption risks and helps stabilize markets and business confidence for the second half of the year.
Still, uncertainty increased in recent weeks as the White House ratcheted up pressure on trading partners from Japan to Canada to get trade deals by announcing higher tariffs. That’s on top of the sector tariff policy swings already affecting key industries, such as automobiles, steel, and aluminum. June auto sales declined for the third month in a row, following a March spike as buyers rushed purchases to avoid new tariffs. Ultimately, the on-again/off-again nature of tariff policy continues to distort economic data and decision-making, with many businesses remaining in “wait and see” mode. Until there is greater clarity on trade policy, tariffs will cloud the economic picture.
Uncertainty has been heightened by expectations regarding Federal Reserve (Fed) actions for the rest of 2025. The notion of replacing the Fed Chair prior to the end of Chair Jay Powell’s term in May 2026 has gotten new life in the past few weeks as headlines swirled about the Fed’s management of refurbishing its two Washington headquarters buildings, which had massive cost overruns. Yet, the Fed Chair—while influential—holds just one of 12 votes when setting interest rate policy. Even if a new Chair were inclined to cut rates immediately, they cannot act unilaterally. The Fed’s decision-making process is deliberate, data-dependent, and designed to resist abrupt shifts in policy.
The U.S. economy remains in a “muddle-through” mode—where activity is uneven, but the underlying economic foundation remains intact. While the passage of the tax and debt ceiling deal removes elements of uncertainty, lingering tariff and trade policy uncertainty continues to weigh on growth. Until trade policy normalizes, the on-again/off-again tariffs will continue to create air pockets of demand that will jostle economic data.
