Market Overview June 24, 2025
Summary
The Fed has made “deliberate caution” its governing stance, keeping the 2025 median at two rate cuts by a 10-9 vote in the dot plot, while the speaker leans toward just one. Powell repeated “we are in a good place” four times, signaling that rates will wait for the tariff shock to show up in the data; Goldman expects a December cut, while the speaker sees any move coming no earlier than September.
Tariffs will weigh on GDP and lift inflation, but this cycle looks more like a one-off summer goods-price shock than the wage-price spiral of the pandemic era. Goldman estimates a 14% increase in the effective tariff rate; using the lower bound of existing tariffs and suspended measures, the current scenario is about 10%. Goods prices could rise three to six months after tariffs take effect, while services inflation is more likely to be shaped by immigration policy.
The “Big Beautiful Bill” suggests the US may have entered a fiscal cycle that is difficult to reverse: the deficit-to-GDP ratio will stay around 5%, while debt-to-GDP continues to rise over the next decade. The speaker sees the pandemic as the potential true inflection point, with Trump merely extending the path set under Biden; that does not imply a monetary or debt crisis over the next decade-plus, but elections, the debt ceiling, real rates and who ultimately pays will remain political and market concerns.
Section 899 has tied tax policy to trade negotiations, making Europe the most likely source of a market shock once the 90-day window expires. China talks appear stable on the surface, Japan is constrained by elections, while Europe and Canada face lengthy bilateral negotiations over taxes such as DST; the speaker still sees Trump in “TACO mode,” reluctant to absorb another market selloff, though sector-specific tariffs of roughly 25% may continue to emerge.
The base case for Iran has shifted from “conflict accumulation” to relief from the military outcome, with neither oil nor Israeli equities trading as if the war were escalating. The speaker’s experience is that geopolitical tension matters most when markets think war is coming but it has not yet begun; after Israel secured air superiority and the US used bunker-busters, Iran carried out a symbolic, pre-notified retaliation, followed by a ceasefire arrangement lasting roughly 6 to 12 hours.
The oil-price tail risk that remains is the Strait of Hormuz, not the airstrikes that have already occurred. If Iran has both the intent and the capability to close the strait, global supply could fall by 15M to 17M barrels per day, with roughly 90% impossible to replace quickly, pushing oil to at least $100-$120; the US and China each hold about 400M barrels in strategic reserves and Japan about 250M, enough for only roughly three months by the speaker’s estimate.
Tesla’s Robotaxi launch demonstrates the direction of travel, but may also have exhausted the main catalysts for 2025, with the near-term earnings trough still ahead. Hardware 5 tape-out may slip into next year, and FSD, Robotaxi commercialization and revenue realization will not come quickly; China accounts for roughly 20% of global sales and competition is intensifying. Longer term, Robotaxi’s cost advantage over Waymo and the potential to license FSD to EV and hybrid automakers remain sources of upside. The speaker also sees AI and US household equity ownership as key reasons US stocks have outperformed other markets.
Deep dive
1. Powell’s Four “We Are in a Good Place” Refrains: Cuts Must Wait for the Tariff Impact
The speaker’s summary of this Fed meeting was “deliberately very cautious”: with Trump’s tariffs, slowing growth and geopolitical tension all in play, the Fed does not want to pre-commit to a direction. The dot plot put the 2025 median at two rate cuts by a 10-9 vote, but that narrow majority itself underscored the split.
Powell repeated “we are in a good place” four times after the meeting. The speaker’s read is that current rates are high enough to handle both tariff-driven inflation and a potential slowdown, so policy is unlikely to change soon. Goldman expects just one cut this year, in December; his base case is also one cut, though the window could open after September.
He said the 2026 and 2027 forward dot plots “shouldn’t be watched too closely,” because long-range forecasts are unreliable. Fed expectations over the next 6 to 12 months matter more, as the central bank usually works to guide markets with reasonable accuracy. The fact that some officials called for a July cut—he recalled that it was “probably Bowman”—does not represent the broader stance of the chair and voting members.
2. Summer Goods Inflation Will Set the Cut Window, and This Cycle Looks Less Like a Pandemic Spiral
Goldman estimates that tariffs will raise the effective tariff rate by 14%, though some measures have yet to take effect. Treating the 90-day suspension on China tariffs and current arrangements as the lower bound, the speaker estimates the present scenario at roughly 10%, close to market pricing for the Fed. That is why the Fed made only a modest downward revision to GDP growth and upward revision to inflation, rather than using the most aggressive assumptions.
Tariffs that might have taken effect in March or April require roughly three to six months to show up in consumer prices, so the size of the rebound will not be clear until “after summer.” Powell’s reference to a “meaningful” impact on consumer prices does not mean an immediate return to persistent, pandemic-style inflation.
The difference from the pandemic era is that wages were rising in tandem then, creating a wage spiral that was difficult to stop. This round of tariff pressure is concentrated mainly in goods. Rents have not yet moved materially, and future service-price inflation may have a stronger link to immigration policy than to tariffs. Goods inflation is therefore more likely to be one-off, though the Fed will still wait for the data.
At the start of the year, the speaker thought 2025 could bring 3 cuts or more. Once tariffs began to “lower GDP and raise inflation,” he moved to a range of 1 to 2 cuts and then leaned further toward just 1. For 2026, he initially mentioned the possibility of 2 to 3 cuts, before tightening that to 1 to 2 under the inflation constraint.
3. The Fiscal Cycle May Have Passed Its Inflection Point, but Fiscal Expansion Can Still Support Growth
The speaker’s fiscal-cycle framework starts with credit: US private-sector credit is growing by only about 1% to 2%, while government credit rose roughly 10% last year. That credit growth supported about 5% nominal GDP growth. More and more of the demand for funds is being created by the government rather than the private sector.
After the “Big Beautiful Bill,” the deficit-to-GDP ratio remains roughly stuck at 5%, while debt-to-GDP keeps rising over the next decade. He described fiscal dependence as “like taking drugs—you can’t quit once you’re addicted,” and said the true inflection point may have been the pandemic rather than today. The Trump administration is simply extending the path already in place.
This does not mean the US is about to face a monetary or debt crisis. The speaker does not even expect a monetary crisis necessarily within the next 10 or 15 years. But a higher debt ratio combined with higher real interest rates will keep the debt ceiling, election debates and fiscal sustainability as recurring market disruptions. Ultimately, the bill must be paid either through fiscal consolidation or through inflation, money printing or Fed purchases of Treasuries.
The fiscal cycle is “not necessarily a bad thing” for assets because it supports economic growth. He cited China’s fiscal-driven expansion from 2008 to 2015 as a reference point, while stressing that China’s later demographic, policy and renminbi-status problems cannot be transplanted directly into the US outcome.
4. Section 899 Makes Europe the Key Risk Point in the Tariff Talks
The speaker treats Section 899 and the trade negotiations as one issue: “Tax and trade negotiations are really two things that have been combined.” With the 90-day negotiating window nearing expiration, the main targets remain China, Mexico, Japan, Vietnam and Europe, all of which run sizeable trade surpluses with the US.
On the surface, China and the US appear to have reached an understanding, though cracks could emerge later; for now, a larger rupture does not look likely. Japan is unlikely to reach a deal early with elections approaching. Europe and Canada, meanwhile, face the DST and other taxes that the US views as discriminatory, making bilateral tax negotiations inherently slow.
A breakdown with Europe followed by renewed tariffs would hit markets hard. The speaker compared it with the selloff that occurred when tariffs expanded from China to all countries: the market impact was limited when China alone was targeted, but became clear once the measures went global. He still sees Trump in “TACO mode,” “not really willing to let markets absorb too much volatility.” Sector-specific tariffs of roughly 25% could nevertheless continue to emerge, while Section 899 could also weaken foreign investment in the US.
5. Once the Iran Conflict Landed, Markets Treated the War as Risk Clearance
The speaker believes Israel’s initial strikes on Revolutionary Guard leadership, the general staff structure and air-defense facilities left Iran’s leadership facing something beyond an ordinary war: the fear that “I can only hide in a bunker,” with close allies eliminated and ground control potentially lost. Israel then secured air superiority, after which the US used bunker-busters unavailable to Israel.
Trump had previously given Iran a 60-day grace period for nuclear negotiations, and the attack came after the deadline expired. The speaker noted that there had been no visible release of nuclear material after the strikes on nuclear facilities, leading him to infer that Iran “may” have moved the material in advance. His conclusion was that the US and Israel wanted to prevent Iran from acquiring nuclear weapons, not necessarily overthrow the regime.
When Iran retaliated against US military facilities, it notified Washington in advance so personnel could evacuate—the location was “probably Bahrain,” according to the speaker’s recollection. After the symbolic attack, a ceasefire arrangement lasting roughly 6 to 12 hours was announced, leaving an exit ramp for de-escalation.
Market behavior supported that interpretation. Crude rose mainly during the pre-war tension build-up, jumped only briefly once the war began and the US bombed Iran, then turned choppy and lower. Even after missiles hit Mossad facilities and Tel Aviv, Israeli equities did not fall materially and instead rose. After speaking with CEOs of local startups, the speaker’s impression was that “people remain very united,” with sentiment notably optimistic.
6. Hormuz Is the Major Oil Tail Risk Still Being Priced
The speaker’s rule of thumb is: “When it doesn’t erupt, the build-up has the greatest impact on markets; once it erupts and is resolved, the market instead gets relief.” Oil prices are falling now, implying that markets are pricing in no actual Iranian closure of the Strait of Hormuz.
If the strait were truly blocked, supply could fall by 15M to 17M barrels per day. A US supply response might add only a few hundred thousand barrels, while Russia’s spare capacity would be difficult to bring online in time; roughly 90% of the shortfall could not be met. Global strategic reserves would be the only buffer, crude could easily break above $100, and the speaker estimates oil would reach at least $100-$120.
The reserves he cited are about 400M barrels for the US, 400M for China and 250M for Japan. If the strait stayed closed, strategic reserves would be exhausted in roughly three months. The market’s current relief therefore rests on the assumption that Iran will not actually close the route; if Iran has both the intent and the capability, the oil-price scenario changes completely.
7. Robotaxi Is the Technology Catalyst, but Tesla’s Earnings Payoff Still Requires Patience
Robotaxi was a key catalyst in Tesla’s reversal from decline to rally. The speaker agrees that the product “is very strong” and shows the direction of future autonomous driving, but moving from the Robotaxi demonstration to broad FSD adoption and then supplying other automakers will still require hardware advances. A catalyst “boiling over” does not mean the downturn is over.
Hardware 5 could show progress by year-end, but tape-out was originally planned for year-end and may slip into next year given Tesla’s habitual delays. FSD and Robotaxi commercialization, as well as revenue generation, “won’t happen that quickly,” so earnings could remain at a trough through year-end.
The long-term thesis remains intact: Tesla has exposure to both robotics and autonomous driving, two AI directions; Robotaxi costs far less than Waymo’s and uses a vision-based system. The speaker believes FSD could eventually be supplied to other automakers, covering hybrids as well as EVs.
Near-term pressure comes from the auto business and competition in China. China accounts for roughly 20% of Tesla’s global sales, which is material, and Chinese automakers have been forged by intense competition, “like refining poisonous insects.” The speaker’s bottom line is to keep watching the name and remain constructive over the long term, while acknowledging that “its catalyst is a bit too strong in the short term.”
He also identified AI as an important reason US equities have diverged from European stocks, and noted that the largest holders of US equities are not hedge funds. Hedge funds account for only about 2% to 3%; most shares are held by households, with household wealth—including 401(k) assets—heavily allocated to equities.