Risk Management
Federal Reserve Chair Jerome Powell wrote to OMB Director Vought on Thursday in response to accusations of "serious mismanagement" in the renovation of Federal Reserve buildings. Powell stated that the projects involve two historic buildings from the 1930s that have never undergone comprehensive renovation. Meanwhile, White House officials have used the project as a focal point to question Powell's suitability for his role, while potential successor Kevin Warsh has called for a "regime change" at the Fed.
Data from the U.S. Census Bureau show that retail sales rose 0.6% month-over-month in June, reversing the previous two months' declines, but consumer confidence remains weak. San Francisco Fed President Daly, New York Fed President Williams, and Fed Governor Kugler all warned that tariffs could push up inflation and weigh on spending, with GDP growth expected to slow to around 1% this year.
The U.S. inflation rate rose to 2.7% in June, up from 2.4% in the previous month, mainly driven by businesses passing tariff costs on to consumers. Imported goods prices led the increase, with clothing, household goods, and appliance prices rising 0.4%, 1%, and 1.9%, respectively. The report reinforced the Federal Reserve's stance on holding interest rates steady, but Trump and some Fed officials are divided over rate cuts.
KPMG conducted a survey of approximately 300 US CFOs and executives from May to June, and the results show that 57% of respondents say tariffs have squeezed gross margins, with about one-quarter reporting margin declines exceeding the 6%-10% range. Meanwhile, about one-third of respondents say retaliatory tariffs have led to an overall 16%-25% decline in overseas sales, with companies in China particularly affected, as about 83% of firms report sales declines.
The recently enacted "One Big Beautiful Bill" in the U.S. is seen by analysts as a positive factor for M&A deals. The act extends multiple provisions of the 2017 Tax Cuts and Jobs Act, permanently reinstates 100% bonus depreciation for qualified assets, and relaxes restrictions on corporate interest deductions. Professionals from firms such as PwC and EY believe that tax certainty is expected to drive deal activity, particularly in the energy, financial, and manufacturing sectors, but uncertainties such as tariff negotiations and geopolitical issues remain.
A report released by Deloitte on Tuesday showed that CFO confidence fell sharply in the second quarter due to economic headwinds and geopolitical uncertainty. About 33% of CFOs surveyed believed it was a good time to take on more risk, down from 60% in the first quarter and the lowest level since the third quarter of last year.
As the 90-day suspension period is about to end, US President Trump has begun to announce tariff rates on imports from specific countries, with the new rates taking effect on August 1, some differing from those previously announced.
PwC's latest report indicates that despite high hopes for an M&A recovery early in Trump's second term, U.S. M&A activity grew only slightly in the first half of the year, with trade policy uncertainty prompting companies to pause or reassess deals. The report advises strategic buyers to increase the frequency of scenario planning, and CFOs to manage liquidity cautiously.
According to US Labor Department data, continuing jobless claims increased by 37,000 to 1.97 million for the week ending June 14, the highest level since November 2021. Both hiring and layoffs have declined, indicating a cooling labor market. Fed officials are divided on the employment outlook, with some indicating they may support a rate cut at the July meeting if inflation is under control.
Federal Reserve Chair Jerome Powell testified before the Senate Banking Committee that the central bank will keep its benchmark interest rate unchanged to assess whether the impact of tariffs on inflation is short-lived or lasting. He noted that most policymakers still expect room for rate cuts this year, but emphasized the need to proceed cautiously.