Tariffs are a direct tax paid by the domestic importer, period. This functions as a significant, unacknowledged fiscal tightening by massively increasing the corporate tax bill. This drain on the economy is a primary driver of the current recessionary impulse, contrary to political narratives.
The sharp drop in the fiscal impulse represents a direct, dollar-for-dollar hit to nominal GDP that has already occurred. This indicates a recession is underway, not forthcoming. The National Bureau of Economic Analysis (NBER) will likely backdate the start of this recession to the third quarter of 2025.
The market will likely ignore deteriorating fundamentals until a non-economic catalyst forces a repricing. A constitutional crisis, such as the Supreme Court striking down Trump's executive actions on tariffs, could be the event that shatters market sentiment and triggers a sharp correction.
The RRP facility served as a parking spot for excess corporate savings after COVID. Its usage flatlining is not a technical liquidity signal but an economic one: corporations have spent their cash reserves and are now under financial stress, which validates the broader fiscal tightening thesis.
While headline corporate profits have stalled, adjusting them for the direct tax impact of tariffs reveals a sharp ~10% decline. The stock market's continued rally in the face of this profit compression signifies a major disconnect from fundamentals, suggesting equities are significantly mispriced.
Since 2014-2015, the Federal Reserve's actions have not materially impacted the economy's flow of funds. The intense market focus on Fed announcements is a distraction from the true economic driver: fiscal policy. Analysis should sideline the Fed to gain a clearer picture of the economy.
Instead of relying on lagging, revised government statistics like GDP, analyzing the daily flow of funds from the U.S. Treasury Statement provides a hard, real-time indicator of economic activity. This raw data on tax receipts and spending offers a more accurate, timely picture of economic health.