Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA®), a CERTIFIED FINANCIAL PLANNER™ (CFP®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.
Market Update: Tariffs, Inflation, and the Fed: What Investors Need to Watch
August 18, 2025
One of the big questions for markets right now is: who’s really paying for the tariffs? The U.S. government is collecting tariff revenues at a pace of roughly $300 billion per year, but whether those costs fall on importers, exporters, or consumers is still evolving.
Recent data suggests producers are carrying much of the burden. The Producer Price Index (PPI) rose 0.9% in July, the fastest monthly increase in three years, while the Consumer Price Index (CPI) held steady around 3% annually. That means consumers haven’t yet felt the full weight, but companies are facing rising costs — a squeeze that could eventually impact margins, hiring, or even prices on store shelves.
This week will provide fresh insights into the health of the consumer as major retailers report earnings, including Walmart, Target, TJX, Home Depot, and Lowe’s. Since consumer spending makes up about 70% of the U.S. economy, these results will be closely watched.
The spotlight then shifts to Federal Reserve Chair Jay Powell, who speaks Friday at the annual Jackson Hole Economic Symposium. Historically, this has been a stage for signaling policy shifts. Last year, Powell used it to preview a rate cut — and he may do the same this year, with markets watching closely for hints about the Fed’s September meeting.
Why does the Fed remain so focused on lowering inflation? Even a 1% difference in long-term inflation makes a big impact:
That gap can significantly erode purchasing power, which is why the Fed isn’t ready to declare victory yet.
Bottom Line
As always, if you have questions about how these developments may affect your portfolio, please reach out to your EP Wealth Advisor.
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Disclosures:
Video Summary:
Adam Phillips: [00:00:00]
So the big question among investors and economists in recent weeks is, who's paying for all these tariffs? We've seen the US government collect revenues on tariffs at a pace of about $300 billion per year. So someone's gotta be paying for this. Is it the importers? Is it uh, those that are actually doing the exporting?
Uh, or is it the end consumer? Last week we got a little bit of information here, uh, in the form of the consumer price index. That's, uh, annual C, or excuse me, that's the monthly CPI report that we get on broad inflation and that showed that in. Even though inflation remains uncomfortably high, it's still close to 3% on an annual basis.
It does not appear to be seeing a, a notable increase, and that's contrary to what many would've expected. The consumer does not appear to be footing the bill just yet, but last week we also got the producer prices index, and here we did see a bit of a pickup. Actually, the number on the month over month basis for producer prices rose nine tenths of a [00:01:00] percent.
That's the fastest pace in three years, and it comes, came in well ahead of expectations for about two tenths of a percent increase. So on an annual basis, producer prices are up about 3.3%. That is quite a bit higher than CPI. And so it does appear for now that it is the producers who are footing the bill.
Maybe they're doing it because they don't think the tariffs will last long, or maybe they've tried to pass on costs and they just don't feel that they have the pricing power in today's environment. But either way, it's going to be really important for us to keep an eye on where this goes. In the months ahead, will they try to pass on cost to the consumer?
Who might, uh, who might, uh, actually balk at that and, and reduce demand, especially for, for discretionary good will they choose to continue absorbing the hit from tariffs themselves, in which case it could impact margins and profitability. That's something that we need to keep an eye on, especially if we are looking at earnings growth as the primary source [00:02:00] of gains for the s and p 500 and other equities.
And if they do choose to absorb the costs, they, they do have other options as well. They could try to protect margins by cutting spending. They could, uh, cut
labor, in which case that is not a great setup for the economy. So there's quite a bit of uncertainty here. We're starting to get a little bit more clarity, but there's, this is still a very fluid environment.
As we turn our attention to this week, we're going to get some more information about the state of the consumer in major earnings reports from retailers including Walmart, target. TJX, home Depot, Lowe's. So these will all be important reports so that we can see how the consumer is doing. Are they cutting their spending?
Are they substituting their spending for lower price goods? These are going to be really helpful reports for us just to gauge the health of the consumer. We know the consumer. Uh, it traditionally makes up about 70% of our economy, so these are really important to keep an eye on. But the major event this week comes on Friday morning, and that's when Jay Powell, the [00:03:00] Federal Reserve Chair, delivers his keynote address at the Jackson Hole Economic Symposium.
In the past, this has been a, a great forum for the Fed Chair to announce major changes to policy and, and, uh, provi try to set the expectations among investors among the street with potential changes in policy. So we, we do think that this could be an opportunity for Fed Chair Powell to preview a potential rate cut at their next meeting in September.
I will note that. Last year, last August when Fed Chair Powell spoke in Jackson Hole, he did preview the rate cut that did ultimately come at their next meeting last September. So he could do the same this time around. Uh, beyond that, it's going to be the, the Fed is in a tricky spot. We know inflationary pressures are still there.
We haven't seen a meaningful uptake, or at least as, uh, as much inflationary pressure as some might've expected. Once these tariffs were first announced, but there's still enough uncertainty to keep the fed on [00:04:00] pause even though we are starting to see some dissent there within the group and those who do wanna see additional rate cuts beyond September's meeting.
Just, uh, some, some food for thought though. Why is the Fed so concerned? About getting inflation down to a more normal level. Many, many, uh, refer to as that 2% annual price growth. Well, inflation is still about 3%, and we, we've seen that, that disinflationary progress has stalled, meaning inflation is not coming down.
It's kind of hovering there, and we're waiting to see if it ticks higher or if it actually comes down. And that's the, the big question right now. But for now, the Fed can't or doesn't want to declare victory. Prematurely. Let's just acknowledge the fact that over 20 years, if you have 2% price growth, your spending power actually declines by about 48%.
If you leave, uh, the inflation rate at 3% and you have 3% inflation over a 20 year period, prices rise by about 80. So that is a pretty [00:05:00] big difference, even though we just think that the difference between a 2% and a 3% inflation isn't all that big. It is big enough, especially in the grand scheme of things.
So that is what the Fed is focused on. I'll leave it there for now. Uh, I'll look forward to catching up with everyone next week. But for now, please feel free to reach out to your advisor if you have any questions. Thank you.