Weekly Macro Report, September 1 2025

1. Economic Growth & Outlook

The S&P 500 closed at 6,460.26 on August 29, 2025, up approximately 16.3% year-over-year, signaling strong equity market momentum. U.S. GDP grew at a robust 3.3% annualized rate in Q2 2025, rebounding from a 0.5% contraction in Q1. The Federal Reserve’s effective funds rate held steady at about 4.33%, with futures implying a rate decline toward 4.25% by year-end. This monetary stance supports sustained growth and employment gains, while the moderate rate cut expectations reflect cautious vigilance toward inflation risks.

2. Labor Market

July 2025 labor market data show sluggish job growth with only 73,000 payroll additions and May-June revisions cutting 258,000 jobs, while the unemployment rate rose slightly to 4.2%. Initial jobless claims declined modestly to 229,000 by late August, indicating stable but subdued layoff activity. Labor force participation edged down to 62.2%, and the concentration of gains in health care contrasts with losses across manufacturing and government sectors. These signals suggest the Fed may maintain current rates, cautious against tightening amid persistent labor market fragility and muted hiring momentum.

3. Interest Rates

As of late August, the 10-year Treasury yield edged up to 4.23%, down about 0.15 points over the past month but up 0.33 points year-over-year, reflecting sustained borrowing costs for government debt. Investment-grade corporate bond yields remain elevated amid expected heavy September issuance, with spreads slightly wider yet still near historic tight levels, signaling stable but cautious credit conditions. Meanwhile, the 30-year fixed mortgage rate held near 6.66% at the start of September, slightly below its recent peak but still restraining affordability for homebuyers and limiting refinancing demand.

4. Yield Spreads

As of August 29, 2025, the US Yield Curve between the 10-year and 2-year Treasury notes sits at +0.64%, indicating moderate confidence in economic expansion over the next year. The 10-year Treasury yield stands at 4.23%, slightly down from recent highs, consistent with steady long-term growth expectations. Credit spreads currently remain tight, reflecting sustained investor willingness to take on risk. Together, these factors suggest a measured but positive growth outlook with continued risk appetite in the fixed-income market.

5. Inflation Dynamics

As of July 2025, U.S. headline CPI rose 2.7% YoY, driven primarily by shelter costs (+3.7% YoY), while energy prices declined 1.6%. Core CPI increased 3.1%, the highest in five months, supported by gains in medical care, used vehicles, and household furnishings. The Producer Price Index, a leading indicator, rose 3.3% YoY in July, signaling persistent upstream price pressures. Market-based 10-year breakeven inflation rates remain near 2.3%, reflecting moderate long-term inflation expectations relative to global peers.

6. Money Supply

The U.S. M2 money supply recorded a 4.8% year-over-year increase in July 2025, reaching a record $22.12 trillion, marking a moderate deceleration from prior years but still above the long-term average growth of 6.3%. Meanwhile, CPI inflation currently stands around 2.6% year-over-year, reflecting restrained price pressures. Given that M2 growth moderately exceeds inflation and is above recent real GDP growth, liquidity conditions remain mildly inflationary, driven primarily by steady expansion in liquid deposits and a less restrictive monetary environment since early 2025.

7. Consumer Sentiment

In August 2025, the University of Michigan Consumer Sentiment fell to 58.2 from 61.7 in July, with Expectations declining to 55.9 from 57.7, widening the negative spread to -2.3 points. The US yield curve spread between 10-year and 2-year Treasuries was positive at 0.64%, indicating modest confidence in economic growth ahead. The usual negative spread in consumer expectations typically mirrors the yield curve's signal, reflecting households' microeconomic concerns and bond markets' macroeconomic outlook. This divergence suggests cautious consumer sentiment amid still moderate market optimism.