Themes I’m paying attention to

• Dollar depreciation – USD has fallen ~15% against the euro and ~25% against gold since Trump’s inauguration. During the 1970s, the dollar fell ~15x against gold (but that included leaving Bretton Woods and the gold standard). The S&P 500 is up about 8.5% since the beginning of the year, which is another way of saying the dollar has fallen 8.5% against equities.
• Trade – Despite the tariffs and the depreciation in the dollar, the trade balance remains negative (~$60 billion), around 2023 levels. It is less negative than it was a couple months ago, when people were mass importing stuff to get ahead of the tariffs.
• Interest rates - Fed funds futures pricing implies a ~30% chance of a 25 basis point cut at the Sep 16-17 FOMC meeting. A full 25 bp cut is priced in by December. It appears to be a given that Trump won’t reappoint Powell, and will instead pick someone who is much more dovish (say, Waller). However, a dovish Fed chair isn’t a guarantee of lower rates because the Chair is still only 1 vote out of 12 on the FOMC.

Market prices

• Treasury yields have declined since the beginning of the year, with the 10-year at 4.33% versus 4.6% at the beginning of January. The front end has also declined. The curve is now weirdly inverted from the front to the 3-year point, with the 3-year yield at 3.72%.
• The 3-year Treasury roughly corresponds to the end of Trump’s second term. The market could be pricing three years’ worth of political pressure on the Fed, at which point the Fed could return to a normal state of noninterference from political actors. Or, it could be pricing in a very gradual slowdown or recession over the next three years.
• The S&P 500 closed at 6449, up from 5942 at the beginning of the year. The S&P had fallen to nearly 5000 following Liberation Day, and has had an incredible run since then (which I did not expect).
• We are also hearing about meme stocks and SPACs in the news again. Bitcoin still exists. Looks like investor euphoria is back.
• The dollar has been steadily depreciating since Trump’s inauguration, but the momentum of the decline has slowed. EURUSD is currently at 1.167 dollars for one euro. It has been trading in the 1.14-1.18 range for most of the summer, in contrast to ~1.02 around the time of the inauguration.
• Gold has seen a similar trend, opening the year at $2,661/oz and climbing against the dollar over the course of the year. It has been stable over the summer and is now trading at $3,335.

Data

Although the stock market is breaking new records every day, the economic data don’t look great:

• The U.S. unemployment rate came in at 4.2% in July 2025, up from 4.1% the month prior. The big surprise was the small gain in July (only +73,000 jobs) combined with downward revisions of 258,000 for May and June. Although the data were bad enough, the print prompted Trump to fire the BLS director for making him look bad or something. I guess if the data are good, that’s evidence of Donald Trump’s obvious brilliance, but if the data are bad, that means someone is trying to make him look bad. This is the world we live in now.
• The CPI data weren’t great either. Core CPI came in at 3.1% over the last 12 months, which puts the Fed in quite a difficult position with the backdrop of a potentially deteriorating labor market. That is probably why the market is pricing in only a handful of cuts over the next year despite the intense political pressure coming from the Trump administration.
• PPI data also showed a concerning increase in prices, with the 12 months ending in July going up by 3.3%. The Fed considers 2% to be a stable inflation rate. This could be evidence that the tariffs are finally starting to bite.