Tariffs, Jobs Revisions, and a Likely September Rate Cut: A 2025 Playbook for Investors

Executive summary 🚦

• Tariffs are an inflationary tax on imports with meaningful pass-through to US prices and potential drag on real income and growth.
• The May–July 2025 jobs “revisions story” reinforces: first prints are noisy; the trend is softer-but-resilient, not falling off a cliff.
• Markets are pricing high odds of a September Fed cut; path-dependency matters if tariffs reheat goods inflation.
• Strategy: quality tilt, measured duration add, TIPS hedge, domestic/nearshoring supply chains, and cyclicals only where pricing power is credible.

1) Tariffs: how they transmit to prices, margins, and growth 📦💵

Mechanics in plain English:

• When a universal/broader tariff is imposed, importers face higher landed costs. If they can pass it to consumers, consumer prices rise (goods CPI pressure); if not, corporate margins compress. Often it’s some of both.
• Substitution kicks in (toward domestic or alternative suppliers), but that retooling is slow, capex-heavy, and can be inflationary in the near term.

What the literature says (selected quotes): 📚

• “Tariffs are almost entirely passed through to domestic prices, implying that the incidence of the tariffs falls largely on the United States.” — Amiti, Redding, Weinstein (QJE/NBER).
  Source: NBER
• “Tariffs function as a tax on imports; they tend to raise consumer prices and can weigh on GDP over time.” — Congressional Budget Office (overview).
  Source: CBO

Sectoral transmission (who likely feels what) 🔀

• Pressured: import-heavy retail/apparel, consumer electronics, low-margin discretionary without pricing power, capital goods with deep China inputs.
• Potential relative beneficiaries: US industrials (nearshoring), rails/trucking, select energy/infrastructure, North America materials, Mexico-linked supply chains.
• FX/EM angle: if tariffs intensify, watch for policy and counter-tariffs; prefer EMs tied to North American supply chains vs. those exposed to US-China friction.

“Sticker shock” vs. underlying inflation 🧾

• Even if core inflation is trending lower, a tariff shock can re-elevate goods inflation prints for a few months. The Fed will weigh that against trend cooling in services/core ex-shelter.

2) Labor market: revisions > headlines 👷‍♀️📈

What happened and why it matters

• Monthly payrolls are frequently revised as more establishment responses arrive. If May–July 2025 initially looked weaker (even “job losses”) and were later revised higher, the signal is that demand is softer but intact—closer to a controlled glide path than a downdraft.
• Markets trade the first print; the economy follows the revised trajectory. This is why macro investors track the 3-month and 6-month averages after revisions.

Authoritative note on revisions:

• “Monthly estimates are revised as additional reports are received; revisions can be sizable when response rates and seasonal patterns shift.” — BLS CES methodology.
  Source: BLS CES Revisions • Latest release: Employment Situation

Implication for the Fed 🏛️

• Revisions that keep payrolls positive (or less negative) plus cooling inflation reinforces a base case for a measured cut rather than emergency easing.

3) Fed: odds favor a September cut—how far and how fast? ✂️📉

• Market-implied probabilities (CME FedWatch) have reflected elevated odds of a September 2025 cut, consistent with moderating inflation and uneven growth momentum.
  Source: CME FedWatch Tool

How tariffs change the calculus 🧮

• If tariffs re-accelerate goods inflation, the Fed may proceed with a trim (25–50 bp) but keep a shallow path until goods pressure clears. The asymmetry: they’ll cut to insure against growth risk but won’t pre-commit to a long cycle if inflation proves sticky.

4) Strategy: positioning for tariffs + revisions + potential cut 🧭

Portfolio blueprint (base case: mild tariff shock, soft-landing-ish growth, 25–50 bp cut)

• Rates and credit 💼
  • Add duration gradually in the 5–10y “belly” to participate in a cut while limiting steepener risk.
  • Overweight high-quality IG for carry; keep HY selective (avoid lowest quality with import and refinancing exposure).
  • Own TIPS as a hedge against goods inflation bursts from tariffs.
• Equities 📊
  • Quality tilt (high FCF conversion, low leverage, pricing power). Favor companies that can pass costs without destroying demand.
  • Re-shoring/nearshoring theme: US industrials, rail/truck, North America materials; selective Mexico exposure (supply-chain beneficiaries).
  • Barbell: defensives (utilities/healthcare) + selective cyclicals (industrials/energy) if growth stabilizes; be choosy in consumer discretionary.
  • Underweight import-reliant low-margin retailers and China-dependent hardware without alternatives.
• Real assets/commodities ⛽🪨
  • Maintain strategic energy/industrial metals exposure with tight risk controls; tariff-led supply chain adjustments can support demand/prices.
• International/FX 🌍💱
  • Prefer DM balance with North America tilt; EM ex-China with favorable terms-of-trade and linkages to US supply chains.

Scenario guardrails (how we’d pivot) 🧱

• Upside growth surprise: trim duration adds; lean more into cyclicals/small caps, still within a quality framework.
• Sticky tariff-led inflation: raise TIPS/real assets; keep equity quality high; be careful with long duration adds.
• Hard landing: add duration more assertively; rotate to defensives and IG; reduce HY/cyclicals/import-reliant exposures.

5) What to watch (next 4–8 weeks) 👀⏱️

• Tariff implementation specifics: effective dates, product lists, exemptions, and any countermeasures.
• Labor: 3m/6m average payrolls after revisions; jobless claims trend.
• Inflation: core services ex-shelter slope; goods CPI response to tariffs; diffusion indexes.
• Policy: evolving Fed communications around “risk management” vs. “inflation vigilance.”

Chart pack 🗺️

Macro context you can refresh anytime (live FRED images):

• Headline CPI (CPIAUCSL):
  

• Core CPI (CPILFESL):
  

• Nonfarm Payrolls (PAYEMS):
  

• Unemployment Rate (UNRATE):
  

• Effective Fed Funds Rate (FEDFUNDS):
  

Tip: Click any chart to open on FRED and customize date ranges.

Selected references 🔗

• Amiti, Redding, Weinstein. “The Impact of the 2018 Tariffs on Prices and Welfare.” QJE/NBER.
  Source: NBER
• Congressional Budget Office — Tariff analyses (overview).
  Source: CBO
• Bureau of Labor Statistics — CES Revisions; Employment Situation.
  Sources: BLS CES Revisions • Employment Situation
• CME FedWatch Tool — Market-implied policy probabilities.
  Source: CME FedWatch
• FRED (St. Louis Fed) — CPIAUCSL • CPILFESL • PAYEMS • UNRATE • FEDFUNDS.
  Source: FRED