MAGA Doesn’t Mean Making Profits Great Again

Tariffs and an effort to reduce federal expenditures should help offset increases to the U.S. deficit pile stemming from President Donald Trump’s massive tax-and-spending bill, according to analysts at ING.

In a note to clients, the analysts argued that the Trump-backed "One Big Beautiful Bill Act," which would extend tax cuts from 2017 while raising expenditures on defense and border security, is "on the face of it, [...] a huge fiscal giveaway."

They noted that the Congressional Budget Office has estimated that the package will lower tax revenues by $3.7 trillion over the next 10 years, while its proposed spending cuts to some programs would save just $1.3 trillion, "leaving the primary deficit $2.4 trillion wider than would otherwise have been the case."However, the analysts noted that Trump’s aggressive tariff agenda is already generating tax revenues that are separate from the fiscal package, adding on to a little under $200 billion in savings already registered by reduction measures carried out by the Department of Government Efficiency.

Yet "while these initiatives may fill the financial hole created by ’One Big Beautiful Bill Act,’ U.S. deficits will remain wide and debt levels will continue to grow, especially when we consider the continuous 0.1-0.2 percentage point GDP increase in demography-related spending and how that will feed into the U.S.’s fiscal position," the ING analysts said.

"Moreover, the combination of these policies is likely to be detrimental to economic growth in the near term, which runs the risk of official deficit and debt projections being too optimistic."

The Trump administration has touted the bill as a means to boost small businesses, families and American workers. Among a myriad of measures, the legislation includes a push to put Medicaid on a more sustainable footing and efforts to promote growth and entrepreneurship.

Republicans in Congress are currently aiming to pass the massive legislation and have it on Trump’s desk for signing by a self-imposed July 4 deadline.

Source: Investing

Welcome to the award-winning Money Distilled newsletter. I’m John Stepek. Every week day I look at the biggest stories in markets and economics, and explain what it all means for your money.

Just a quick favour, if you’ve got time this lunchtime — it’s the last time I’ll ask, I promise — please help us out by filling in this questionnaire. Gloriously happy or deeply frustrated, we’d love to know how you feel your personal financial situation has changed in the last year.

Finished? OK, let’s turn to something that may well affect the personal financial situation of the UK dwellers among us.

A couple of days ago, I pointed out that the UK’s coalition government was heading for a split. When I used the term “coalition,” I was trying to convey the point — particularly for non-UK readers — that despite the Labour government’s landslide election victory last summer, it’s actually quite divided and that makes it harder to get certain things done.

It now seems that events have come to a head. Prime minister Keir Starmer has backed down on the disability benefit reforms that were meant to save the country £5 billion a year by 2030.

Instead, it seems that the new rules will only apply to new applicants. That raises questions and criticisms of its own (eg if the rules are unfair to existing claimants, in what way are they fair to new ones?) but so far reports suggest that it’ll win over enough rebels to help the government avoid a very damaging defeat Tuesday. (No guarantee though).

Now, there is a perfectly reasonable argument to be made that these reforms were poorly thought out. A more considered approach and a more detailed review of what’s going on might have revealed ways to save just as much money (or more) while avoiding cutting benefits from those who really do need them.

That appears to be a side-effect of the “more haste, less speed” approach to cuts that chancellor Rachel Reeves appears to have taken in her budget last year. So far that’s not worked out as she would have hoped. It’s resulted in not only this U-turn, but also a previous U-turn on winter fuel payments, and quite possibly a pending shift on non-dom taxation.

This presents the government with several problems. Firstly, the reason for taking these “tough” decisions was to stick to Reeves’s self-imposed fiscal rules. These actions were deemed necessary by the chancellor to avoid a repeat of the “Liz Truss” fiasco of October 2022.

The disability benefit reforms specifically were meant to save around £5 billion by 2030. Not a huge sum in the context of the government’s annual spending, but larger than the annual tax raised by stamp duty on shares, for example. And certainly significant in the context of a “£22 billion black hole”.

With the new changes, they won’t save as much. Ruth Curtice of the Resolution Foundation think tank reckons they’ll now save less than half of that.

That leads us to the second problem — the one of political authority. Basically, both Starmer and Reeves expended a great deal of political capital to push these changes past an uncomfortable back bench team. They’ve now been forced to change direction on both — winter fuel by the electorate, and disability payments by their own MPs.

In short, their “political trust” bank account is now overdrawn, which makes future “tough” decisions very difficult indeed. It also means that backbench wish list items — most notably the lifting of the two-child benefit cap — also become much harder to deny.

Where’s The Money Going To Come From?

Which takes us to the third problem. If the fiscal rules need to be met (and that would probably be a U-turn too far, certainly if Reeves is to stay in post), then the government needs to find a way to plug the hole left by these and future demands.

As Paul Johnson, director at the Institute of Fiscal Studies, points out on X/Twitter, the big problem is that the U-turns and rebellions suggest that the the government simply can't make any cuts to spending. And in the absence of fiscal headroom, that “leaves taxes as only margin of adjustment.”

But that’s not easy either. In terms of the tax take as a percentage of GDP, the UK’s tax burden is already at a post-war high. So there is a question mark over how much higher it can realistically go, particularly if one wants to have a hope of carrying voters along.

(You can argue that it’s still relatively low compared to other nations, but this comparison is made somewhat trickier by differences in the way in which university education and also pensions are funded in other nations — this is something I hope to return to in a future letter — it’s an interesting subject).

The classic Jean-Baptiste Colbert line is that “the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the least possible amount of hissing.” But we’re past that point. You’ve got a baldy, angry goose and whichever feather you pluck next, you have to expect to get your fingers pecked.

For example, if you really want to raise significant sums of money at this point — and if we’re now unable to cut Britain’s spending, then we’re going to need to — then you can’t just do it by soaking “the rich”. As my colleague Merryn points out, you need to broaden the tax base — perhaps by cutting the personal allowance, or raising the basic rate of income tax.

(This incidentally, is why populist party Reform UK’s promise to raise the personal allowance to £20,000 so that no one earning less than that pays tax, is so highly improbable).

Those really are tough choices. They won’t go down well on the doorstep. But the closer we get to autumn budget day, the more the state of the UK gilts market will loom large in the minds of investors.

It’s not that the “bond vigilantes” will suddenly materialise with baseball bats in hand, or anything so formal. But if Reeves can’t make her policies stick, and we return to the point where the UK is viewed as ungovernable, then the pressure will continue to build and the risk of a doom loop — and maybe another “Truss moment” — grows.

Source: Bloomberg Europe

In 2023 and 2024, the Fed was under intense public and media scrutiny for calling the post-pandemic surge in inflation “transitory.” Critics argued that the Fed’s failure to anticipate the persistence and severity of rising prices undermined its credibility. Yet, with the benefit of hindsight and historical context, the Fed’s position wasn’t entirely misguided. Inflation proved temporary in a broader economic sense, and by 2025, the data confirmed a significant cooling of price pressures.

However, the Fed’s mistake wasn’t the “transitory” label—it was the Fed’s late response to raising interest rates and halting quantitative easing. As shown, the combined impact of the massive surge in the Government’s deficit spending (stimulus checks and infrastructure bills) and the Fed’s $120 billion monthly “quantitative easing” campaign caused a massive jump in economic growth and inflation.

However, instead of cutting back on stimulus when the economy rebounded, the Fed’s mistake was keeping its “foot on the gas” for too long. These delays allowed the inflationary fire to burn hotter and longer than necessary, exacerbated by an overlooked driver: excessive government spending.

Despite the elevated levels of total economic stimulus, inflation and economic growth have subsided as the economy continues normalizing. However, to understand the Fed’s current policy risks, particularly in light of its recent warnings about tariffs, it’s essential to look back at past inflation spikes

Historical Inflation Spikes and Their Resolution

U.S. economic history offers several instructive examples of inflationary episodes and how they eventually resolved.

• Post-WWII Inflation (1946–1948): After World War II, inflation surged to nearly 20% as price controls ended and pent-up consumer demand met constrained supply. But this spike was short-lived. As production normalized and demand stabilized, inflation quickly receded. The Fed did not need any drastic monetary tightening.
• The 1970s Stagflation: The most notorious inflation era came during the 1970s, driven by oil shocks, wage-price spirals, and loose monetary policy. Inflation remained high for nearly a decade. It wasn’t until Paul Volcker’s aggressive interest rate hikes in the early 1980s, pushing the federal funds rate above 15%, that inflation fell, though at the cost of a deep recession.
• Greenspan’s “Inflation Boogyman:” In the late 90s, Alan Greenspan worried that an inflation surge was coming and aggressively began to hike rates into that anticipation. The further tightening of money policy contributed to the blowup of numerous “dot.com” companies that were heavily leveraged with no revenues. Instead of rising, inflation collapsed as the “Dot.com” crash devastated the economy.
• Post-GFC Disinflation: After the 2008 Global Financial Crisis, many feared stimulus and Fed intervention would trigger inflation. Instead, the opposite occurred. Inflation remained stubbornly low for over a decade, highlighting how debt overhangs and weak demand can suppress prices even amid central bank easing.

Compared to these episodes, the COVID-driven inflation surge stands out for its rapid onset and similarly swift decline. Prices surged due to supply chain disruptions, labor shortages, and historic stimulus. But by 2025, inflation is back to near-target levels. The duration of elevated inflation, from early 2021 through late 2023, was short by historical standards, and it faded as supply chains normalized and stimulus effects waned.

The historical shortcomings of the Fed’s actions, repeated policy mistakes, and flawed outlooks are clearly evident. The Fed hikes rates, creates an economic or credit-related event, and then cuts rates to fix it.

As such, investors should ask themselves why they are confident in the Fed’s current assessment of tariff-induced inflation risks.

The Fed’s Tariff Fears: Misreading the Present Through the Lens of the Past?

At the June 18, 2025, press conference, Fed Chair Jerome Powell expressed concern that rising tariffs could reignite inflation. With trade policy becoming increasingly protectionist, particularly toward China and Mexico, the Fed is wary that tariffs could push up import prices and thus overall inflation.

However, there’s an important distinction: inflation data from the last four months has shown no measurable impact from recent tariff actions. The Consumer Price Index (CPI) has remained stable or declined, while core inflation has softened. Meanwhile, job growth has slowed, and wage gains have moderated. All classic signs of a cooling economy.

This link between the economy and inflation is evident from the Economic Composite Index, which comprises nearly 100 hard and soft data points. Following the spike in economic activity post-pandemic, economic growth continues to decline. Given that inflation is solely a function of economic supply and demand, it is unsurprising that it continues to cool.

This raises a critical policy question: Is the Fed now over-compensating on the cautious side because of its past missteps with “transitory” inflation?

If so, the risk is that the Fed may once again make another policy mistake, as has repeatedly been the case in the past. After keeping rates too low for too long post-pandemic, policymakers might be too hesitant to cut rates, fearing another inflation flare-up that may never materialize. This fear-based approach risks undermining an already slowing economy.

The Risk of Being Wrong Again: What If Tariff Inflation Never Arrives

Tariffs are designed to make foreign goods more expensive. However, supply chains and pricing are far more flexible in today’s globalized economy. If importers can shift production to tariff-free countries, renegotiate supplier contracts, or absorb costs to maintain market share, the inflationary effects of tariffs can be muted or even nonexistent. They are already doing this, as noted recently by CNN.

“The bonded warehouse route takes the opposite approach. Rather than mess with a good’s contents or move production elsewhere, businesses can import products from across the world without paying any tariffs when they enter the US — as long as they remain locked up in a special customs-regulated warehouse. Businesses can keep goods in these warehouses for up to five years without paying a tariff. They only pay the current tariff rate when they take goods out of storage. It’s a bet that tariff rates will go down in the short or medium term.”

Furthermore, companies are “reclassifying and redesigning” products to get lower tariff treatments.

“In other words, companies try to say their article or their good is something that gets low tariff treatment relative to what it might be, in essence. For example, Marvel successfully argued in court in 2003 that X-Men action figures are non-human toys (despite the premise of the franchise) rather than dolls, nearly halving their tax rate.” – NPR

Lastly, as discussed in “Tariff Risk Isn’t Inflation,” economists always forget the importance of consumer choice. The only payee of tariffs is the producers. Consumers can purchase less, delay, or exclude certain products from their consumption. To wit:

“Today, globalization and technology give consumers vast choices in the products they buy. While instituting a tariff on a set of products from China may indeed raise the prices of those specific products, consumers have easy choices for substitution. A recent survey by Civic Science showed an excellent example of why tariffs won’t increase prices (always a function of supply and demand).”

Of course, if demand drops for products with tariffs, prices will fall, reducing inflationary pressures.

Recent economic data suggests exactly that. Despite new levies on Chinese electric vehicles and Mexican steel, consumer durables and core goods prices have not moved materially higher. Businesses appear to be adapting quickly, with many shifting sourcing to Vietnam, India, or reshoring certain elements of production.

This raises the danger of a policy mismatch: If the Fed waits for inflation that doesn’t arrive, it may keep real interest rates excessively high for too long, just as it kept them too low following the pandemic. The consequences could be severe:

• Slower Economic Growth: Elevated rates in a disinflationary environment slow investment and consumption, slowing GDP growth.
• Labor Market Weakness: As rate-sensitive sectors (like housing and manufacturing) continue to weaken, layoffs may rise, further pressuring employment.
• Financial Instability: Prolonged tight monetary policy increases the risk of credit defaults, especially among small businesses and lower-income households with floating-rate debt.

If the Fed is fighting a phantom threat, as Alan Greenspan did in the late 90s, and tariff-driven inflation never arrives, it could inadvertently engineer a downturn. And much like in 2021 and 2022, this would be a policy failure driven not by bad data, but by misjudging the economic environment.,

Conclusion: Learning the Right Lesson from “Transitory”

The Fed’s credibility rests not on never being wrong, but on being adaptive and forward-looking. Inflation has cooled, wage growth has moderated, and economic momentum is slowing. Now is the time for the Fed to focus not on headline fears, but on real-time data.

If tariffs have not yet translated into price increases, and employment indicators suggest slack is growing, the Fed should not delay necessary rate cuts to defend its credibility. Doing so risks repeating the mistake it made during the pandemic: ignoring the lagging effects of previous decisions.

Cutting rates too late would be just as damaging as hiking them too slowly.

The media mocked the Fed’s “transitory” narrative, but inflation was short-lived in the grand scheme. What mattered more was how long the Fed waited to act. With tariffs yet to trigger a real inflationary response and the economy showing signs of deceleration, the greater risk may be inaction, not inflation.

Investors should be alert to the Fed’s tendency to overcorrect past mistakes. Just as policy stayed too loose after COVID, it may now stay too tight for too long in 2025. Recognizing that monetary policy must adapt, not just react, will be key for policymakers and market participants navigating the road ahead.

Source: Investing

India’s current account returned a better than expected surplus in the January-March quarter as trade deficit narrowed following the revision of gold import data.

The surplus in the broadest measure of trade in goods and services was $13.5 billion, or 1.3% of gross domestic product in the period, according to Reserve Bank of India data released Friday.

That compares with a median forecast of a $8.9 billion surplus by analysts in a Bloomberg survey, and a deficit of $11.3 billion in the October-December period.

The trade deficit for the quarter was at $59.5 billion, narrower than $79.3 billion in the October-December period. However, it was higher than the $52 billion in the year ago quarter.

The current account benefited from revisions in gold import data, but non-trade components, such as lower payments of investment income was a surprise, said Madhavi Arora, economist with Emkay Global Financial Services Ltd.

A current account surplus will ease pressure on the rupee that has been volatile in the past few weeks following rise in geopolitical conflicts.

Services exports increased year-on-year in major categories such as business services and computer services.

For the full fiscal year 2024-25, India’s current account deficit was $23.3 billion, or 0.6% of GDP, lower than $26 billion seen during fiscal 2023-24.

Source: Bloomberg Europe

The head of Denmark's Arctic command said the prospect of a U.S. takeover of Greenland was not keeping him up at night after talks with a senior U.S. general last week but that more must be done to deter any Russian attack on the Arctic island.

U.S. President Donald Trump has repeatedly suggested the United States might acquire Greenland, a vast semi-autonomous Danish territory on the shortest route between North America and Europe vital for the U.S. ballistic missile warning system.

Trump has not ruled out taking the territory by force and, at a congressional hearing this month, Defence Secretary Pete Hegseth did not deny that such contingency plans exist.

Such a scenario "is absolutely not on my mind," Soren Andersen, head of Denmark's Joint Arctic Command, told Reuters in an interview, days after what he said was his first meeting with the general overseeing U.S. defence of the area.

"I sleep perfectly well at night," Anderson said. "Militarily, we work together, as we always have."

U.S. General Gregory Guillot visited the U.S. Pituffik Space Base in Greenland on June 19-20 for the first time since the U.S. moved Greenland oversight to the Northern command from its European command, the Northern Command said on Tuesday.

Andersen's interview with Reuters on Wednesday were his first detailed comments to media since his talks with Guillot, which coincided with Danish military exercises on Greenland involving one of its largest military presences since the Cold War.

Russian and Chinese state vessels have appeared unexpectedly around Greenland in the past and the Trump administration has accused Denmark of failing to keep it safe from potential incursions. Both countries have denied any such plans.

Andersen said the threat level to Greenland had not increased this year. "We don't see Russian or Chinese state ships up here," he said.

DOG SLED PATROLS

Denmark's permanent presence consists of four ageing inspection vessels, a small surveillance plane, and dog sled patrols tasked with monitoring an area four times the size of France.

Previously focused on demonstrating its presence and civilian tasks like search and rescue, and fishing inspection, the Joint Arctic Command is now shifting more towards territorial defence, Andersen said.

"In reality, Greenland is not that difficult to defend," he said. "Relatively few points need defending, and of course, we have a plan for that. NATO has a plan for that."

As part of the military exercises this month, Denmark has deployed a frigate, F-16s, special forces and extra troops, and increased surveillance around critical infrastructure. They would leave next week when the exercises end, Andersen said, adding that he would like to repeat them in the coming months.

"To keep this area conflict-free, we have to do more, we need to have a credible deterrent," he said. "If Russia starts to change its behaviour around Greenland, I have to be able to act on it."

In January, Denmark pledged over $2 billion to strengthen its Arctic defence, including new Arctic navy vessels, long-range drones, and satellite coverage. France offered to deploy troops to Greenland and EU's top military official said it made sense to station troops from EU countries there.

Around 20,000 people live in the capital Nuuk, with the rest of Greenland's 57,000 population spread across 71 towns, mostly on the west coast. The lack of infrastructure elsewhere is a deterrent in itself, Andersen said.

"If, for example, there were to be a Russian naval landing on the east coast, I think it wouldn't be long before such a military operation would turn into a rescue mission," he said.

Source: Reuters

The German government is examining measures that could help it stop a potential sale of the Nord Stream 2 pipeline after speculation emerged earlier this year over reviving pipeline gas deliveries from Russia.

Berlin is considering amending the legal basis for investment screening, the economy ministry said in response to a parliamentary inquiry from Green party lawmakers including Michael Kellner, which was first reported by Der Spiegel magazine on Friday.

Germany’s Foreign Trade and Payments Act wouldn’t currently allow Germany to block a sale of struggling Nord Stream 2 AG as it’s a Swiss-based company, it said. Under the regulation, an investment screening is only triggered when it concerns a company that is not part of the European Union or the European Free Trade Association, which Switzerland is a member of.

Speculation about the future of the pipelines started swirling after US President Donald Trump began to push for an end to the war between Russia and Ukraine earlier this year, with some industry officials in east Germany openly supporting the country’s return to the cheaper pipeline gas. Earlier media reports pointed to interest from a US investor in the pipeline assets.

The government has pushed back against calls to revive the pipeline project that links Germany and Russia, with Chancellor Friedrich Merz recently supporting European Union efforts to include the partially damaged links in sanctions against Russia.

Source: Bloomberg Europe