Step cautiously given the foggy economic path ahead

STEP CAUTIOUSLY GIVEN THE FOGGY ECONOMIC PATH AHEAD

The U.S. economy is showing signs of wear and tear as President Trump’s trade and immigration policies begin taking effect.

As Jack Ablin, founding partner and chief investment strategist at Cresset, sees it, a number of economic indicators released recently paint a murky picture of growth, rising inflation, and weakening employment.

According to Ablin, growth has slowed significantly, with GDP expanding at just a 1.2% annualized rate over the first half of 2025, down from 2.8% in 2024.

"Growth has been highly dependent on AI infrastructure spending, which contributed more to economic expansion than all consumer spending combined over the past six months," writes Ablin in a note.

Additionally, he says that rising inflation is adding a pressure point, complicating the Federal Reserve's decision-making process.

On the flip side, Ablin says that President Trump’s “One Big Beautiful Bill” Act is delivering substantial cash windfalls to major corporations through three key provisions that dramatically alter how businesses can expense costs for tax purposes.

While Ablin notes that unemployment remains relatively low at 4.2%, economists warn of rising recession risks if the current trends continue.

His concern is that the combination of slowing growth and rising inflation – stagflation – poses unique challenges for policymakers.

Ablin's bottom line is that the deteriorating economic picture is intensifying pressure on the Federal Reserve to cut interest rates. However, he believes implementing a rate-cutting strategy is not that simple, given higher pricing pressure and corporate spending incentives.

Adding to the uncertainty, he says that Fed Governor Adriana Kugler’s unexpected resignation gives President Trump an opportunity to install a more dovish policymaker.

"The odds of a September rate cut have spiked to nearly 90 percent. We expect a September rate cut, but the path of the economy will determine whether the Fed is 'one and done'," Ablin writes.

(Terence Gabriel)

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