Tariffs Exacerbate Foreign Capital Withdrawal, Inflation Transmission Risk Awaits Explosion
On June 24, as Powell attended a congressional hearing, the uncertainty in the U.S. economy was significantly rising. The Consumer Confidence Index, released by the Conference Board that day, plummeted, reflecting a worsening outlook among the public regarding future income and employment. Meanwhile, economists generally believe that the high tariff policies continuously promoted by the Trump administration pose a long-term threat to the U.S. economy.
Former Chief Economist of the World Trade Organization, Koopman, warned that tariffs would weaken high-value-added industries, causing labor and capital to flow back to less efficient traditional manufacturing, thereby reducing the U.S. economy's capital stock and innovation potential. He noted that current inventories could temporarily cushion the impact of tariffs, but over time, companies will have to respond by raising prices or compressing profits, by which time inflation could rise comprehensively.
The Fed Remains Observant, Cautiously Advancing Rate Cut Path
Although market expectations for a Fed rate cut within the year have heated up, Powell maintained a cautious stance during the hearing. He emphasized that the Fed would base future policy decisions on inflation and employment data and has not ruled out the possibility of a rate cut in September or afterward.
Harvard University professor Allison analyzed that Powell's assessment of inflation's stickiness is accurate, hence he is not in a hurry to cut rates. He pointed out that policy differences have publicly pitted the Fed against Trump, who has repeatedly criticized Powell as "stubborn and foolish." However, Allison contended that Powell, knowing he will not be reappointed, will not succumb to political pressure and may insist on acting according to data.
S&P Global Ratings' Chief Economist Golub added that although central banks in many European and American countries have begun cutting rates, the Fed remains in a "high interest rate stagnation" phase. He predicted that the inflation rate might rise to 3.5%-4% by the end of the year, above the 2% policy target. The Fed will rely on employment and inflation trend data to make further judgments, and two rate cuts this year remain possible.
"Big and Beautiful Act" Raises Concerns Over Fiscal Sustainability
As monetary policy is cautiously advanced, the "Big and Beautiful Act" under consideration by Congress may once again expand the U.S. fiscal deficit. Allison frankly stated that if the act is passed, it could add $2 trillion in deficits over the next five to seven years, posing a systemic risk to the treasury market. He cited the perspective of JPMorgan CEO Dimon, warning that the bond market might face a "hard landing" due to fiscal profligacy.
Koopman also expressed similar concerns. He pointed out that Trump's cavalier attitude towards debt issues stems from his "habitual bankruptcy" experience, while Congress should be the one truly shouldering fiscal responsibility. He criticized the current legislature for following the president too closely, lacking sufficient independence and strategic vision.
Golub called for the restoration of the "bond market vigilante" mechanism—once the market loses confidence in the deficit, soaring bond yields will force the government to carry out fiscal rectification. He stressed the need for an effective feedback loop between the government and the market to maintain a stable debt-to-GDP ratio.
Under Multiple Pressures, U.S. Economic Confidence Continues to Decline
Synthesizing multiple viewpoints, the current U.S. economy faces a threefold policy dilemma: externally, tariff barriers are reshaping global supply chains and undermining foreign capital confidence; internally, monetary policy is in a quandary due to inflationary pressures; while on the fiscal front, there are risks of deficits and debt out of control.
Allison finally pointed out that without a coordinated mechanism on fiscal, trade, and monetary policies, the U.S. economy may fall into structurally low growth, damaging long-term competitiveness. The consensus at the Summer Davos Forum is that the U.S. must face systemic challenges squarely rather than continue to deplete the policy space under dollar hegemony.
