News of the week summary - 06/07/2025
Trump’s Big Beautiful Bill passes senate vote
Donald Trump’s sweeping fiscal package, dubbed the “big, beautiful bill”, inched closer to becoming law after the Senate narrowly approved it by 51–50, with Vice President JD Vance breaking the tie. The legislation now heads to the House of Representatives, where opposition remains strong ahead of Trump’s self-imposed July 4 deadline.
The bill seeks to extend the large tax cuts enacted during Trump’s first term, while paying for them through deep cuts in healthcare and welfare programs. It also increases spending on the military and border security, and eliminates taxes on tips and overtime. Supporters argue it delivers on campaign promises and stimulates growth, but critics warn it risks worsening the country’s already fragile fiscal outlook.
The concern centers on the federal deficit and national debt. A deficit occurs when the government spends more than it collects in revenue, forcing it to borrow to cover the gap. Debt accumulates over time when deficits persist. The nonpartisan Congressional Budget Office (CBO) estimates the Senate bill would increase the deficit by $3.3 trillion over the next decade. This prospect has already rattled financial markets, contributing to recent weakness in the dollar as investors worry about America’s ability to manage its finances.
The House vote will be contentious. Fiscal conservatives (“hawks”) argue the bill adds unsustainable debt, while moderates are uneasy about cuts to Medicaid, the health insurance program for low-income and disabled Americans. Speaker Mike Johnson has pledged to move swiftly, but balancing internal divisions within the Republican party will be challenging.
This debate echoes earlier chapters of U.S. fiscal history. Trump’s first-term 2017 tax cuts, much like Ronald Reagan’s in the 1980s, aimed to spur growth through lower taxes but also swelled the deficit. Proponents argue that faster growth eventually reduces the weight of debt relative to the size of the economy, a theory often called “supply-side economics.” But critics note that in both the Reagan and Trump cases, deficits widened without enough offsetting growth. Today’s bill risks repeating that dynamic on an even larger scale, with government borrowing costs potentially rising if investors lose confidence in Washington’s ability to control debt.
U.S. job growth remains strong
The U.S. labor market delivered another surprise in June, adding 147,000 jobs, well above economists’ forecasts of 110 000, despite concerns that Trump’s tariffs and stricter immigration policies might cool hiring. The unemployment rate ticked down to 4.1%, and previous job gains for April and May were revised higher, painting a stronger picture of the labor market than anticipated.
Financial markets reacted swiftly. Stocks climbed to record highs, with the S&P 500 up nearly 1%, while government bonds sold off, pushing the yield on the two-year Treasury to 3.87%. Treasury yields rise when investors expect higher interest rates, as bond prices fall to adjust to the prospect of stronger returns elsewhere. The dollar also gained as traders scaled back bets on imminent Federal Reserve rate cuts, now seeing only a slim chance of action in July compared to 25% odds before the report.
This jobs strength complicates the political pressure President Trump has placed on the Fed to cut interest rates. Lowering rates is typically justified when economic activity slows, as cheaper borrowing can stimulate investment and consumption. But robust job creation signals resilience in the economy, giving the Fed less reason to act. Investors are now questioning even the likelihood of a September rate cut.
Beneath the headline numbers, however, the labor market picture is more nuanced. Job creation has been concentrated in a few areas, hospitality, healthcare, and government, which together account for nearly nine out of ten new jobs over the past two and a half years. More traditional drivers of economic strength, such as manufacturing and construction, have been far weaker. At the same time, federal government employment has shrunk by 69,000 since January as part of a cost-cutting push led by Elon Musk, and the foreign-born labor force has declined for three straight months, raising questions about the longer-term effects of restrictive immigration policies.
Taken together, the figures underscore the precarious balance of the labor market. For now, hiring is resilient enough to reassure investors, but the combination of concentrated job growth, a shrinking government workforce, and potential fallout from tariffs and migration restrictions could soften momentum later in the year. The Fed, once again, finds itself caught between political demands for easier money and economic data that suggest patience is warranted.
Euro’s surge puts ECB in a policy bind
The euro has climbed 14% against the dollar so far in 2025, reaching its strongest level in nearly four years, as investors shift money into European assets to escape U.S. political and policy volatility. While European Central Bank (ECB) president Christine Lagarde recently celebrated a “global euro moment,” the speed of the rally is making some policymakers uneasy, fearing the currency’s strength could hurt exports and weigh on growth.
A stronger euro has mixed effects. On the one hand, it makes imports cheaper, which helps keep inflation low. On the other, it makes European goods more expensive abroad, hurting exporters in economies like Germany that depend heavily on trade. With eurozone inflation just at the ECB’s 2% target in June and expected to dip back to 1.6% next year, officials worry the strong currency could push the bloc back toward the low-inflation, near-deflation environment of the 2010s.
Some at the ECB have hinted they may need to act if the euro continues appreciating. Vice-president Luis de Guindos warned that while $1.18 to the dollar was manageable, a move beyond $1.20 would be “much more complicated.” Analysts suggest that if the euro were to reach $1.25 this year, the ECB might respond with a rate cut to counteract the disinflationary impact. That would be unusual, since higher U.S. rates—currently more than double those in Europe, would normally strengthen the dollar, not weaken it. But investors are losing confidence in the U.S., especially with heightened political and fiscal uncertainty, and reallocating capital into the eurozone instead.
The ECB’s challenge is delicate. Any attempt to influence exchange rates directly could spark accusations of currency manipulation, risking retaliation and even a “currency war.” At the same time, Europe faces the prospect of new U.S. tariffs, which could further strain its export sector. This combination, stronger euro, weaker export competitiveness, and external trade frictions, has left some policymakers apprehensive.
Not everyone is worried. Some investors argue the euro’s strength reflects Europe’s large trade surplus, a fundamental factor that naturally supports appreciation. Others note that today’s exchange rate is not unprecedented: the euro has often traded higher in its 25-year history, and its current level is roughly the same as when the currency was first launched. Still, the rapid pace of this year’s rise has unsettled central bankers, forcing the ECB to weigh whether a “global euro” is a blessing or a burden.
EU and US Push for trade truce as tariff deadline looms
The European Union and the United States are scrambling to reach an “agreement in principle” before July 9 to avoid sweeping new U.S. tariffs on European goods. European Commission president Ursula von der Leyen admitted a comprehensive deal was “impossible” within the tight 90-day negotiating window but said both sides were working toward a more limited understanding to prevent escalation.
President Trump has threatened to impose 50% tariffs on EU exports if no deal is reached, in what his administration calls a “reciprocal” response to America’s trade deficit with Europe. Tariffs are essentially taxes on imports, raising the cost of foreign goods. While they can protect domestic industries, they also risk sparking retaliation, higher consumer prices, and disruptions to global supply chains.
The stakes are high: the EU and U.S. conduct €1.5 trillion in trade annually, making theirs the largest bilateral trade relationship in the world. Currently, U.S. tariffs already cover around €380 billion of EU exports, about 70% of the total. Without a deal, that share could rise further, hitting critical sectors such as autos, steel, chemicals, pharmaceuticals, aerospace, and even chips and raw materials.
EU diplomats indicate Brussels may accept a 10% across-the-board tariff, in line with concessions already granted by the UK, while seeking to reduce especially painful sector-specific tariffs, such as the 50% levy on steel and 25% on cars and car parts. In return, the EU could pledge to purchase more U.S. goods to reduce its trade surplus. German chancellor Friedrich Merz, under pressure from his country’s powerful car industry, urged a “quick and simple” deal, warning that prolonged negotiations would risk damaging key industries.
Other countries have already settled for partial compromises: Vietnam agreed to 20% tariffs, while the UK secured a quota of 100,000 car exports at 10% tariffs, plus exemptions for jet engines and aerospace parts, in exchange for opening its market further to U.S. bioethanol and beef.
For Europe, the challenge is balancing pragmatism with principle: accepting limited tariffs now to shield its industries from harsher measures, while preventing Trump’s tariff strategy from becoming the norm. But with Washington openly considering extending tariffs to nearly all EU exports, even a temporary truce may only delay a broader confrontation.