If 3,000 unauthorized immigrants are deported every day, the labor force will decline by roughly 1 million people in 2025.

Lowering the labor force by 1 million will reduce the participation rate by 0.4 percentage points, which will lower the unemployment rate, lower job growth, and increase wage inflation, particularly in the sectors where unauthorized immigrants work—namely construction, agriculture, and leisure & hospitality.

In short, deportations are a stagflationary impulse to the economy, resulting in lower employment growth and higher wage inflation.

For more discussion and quantification, see this new working paper by Edelberg, Veuger, and Watson.

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With the use of stablecoins growing rapidly for payments, cross-border transactions, and remittances, the global US dollar stablecoin market could grow significantly over the coming years.

This also means that US dollar stablecoins could be used more widely as a means of payment in Europe, Japan, Canada, Australia, and emerging markets.

As a result, the global growth in demand for stablecoins could become a significant new source of demand for short-term US government debt.

Academic papers find that large inflows into stablecoins lower three-month T-bill yields by 2 basis points within 10 days.

The bottom line is that stablecoin demand for T-bills could grow into trillions, and the likely result is a steeper curve with significant new demand in the front end.

For more discussion, see the resources below.

• Bank for International Settlements working paper
• Federal Reserve notes on stablecoins
• European Central Bank paper on stablecoins
• International Monetary Fund paper on crypto regulation

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The concentration in the S&P 500 has returned to extreme levels, with the top 10 companies accounting for 40% of the index’s market capitalization and a record-high share of earnings, see chart below.

The extreme index concentration in tech is obviously not good for investors seeking to diversify their investments across 500 different companies. Anyone investing in the S&P 500 index today is basically making a bet on the Magnificent 7 stocks propelling even higher.

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The consensus economic forecast is that growth will slow down over the coming quarters as higher tariffs weigh on earnings, capex spending, and consumer spending.

The consensus equity analyst forecast is that earnings will accelerate over the coming quarters, see chart below.

This is not consistent. Either the MBA forecasters are wrong about corporate earnings, or the PhD economists are wrong about tariffs slowing down growth.

The second-quarter earnings season will start next week and reveal who is right. If earnings continue to be strong, the adverse effects of tariffs, as expected by economists, will prove to be incorrect.

In other words, either the equity analysts are too optimistic, or the economists are too pessimistic.

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The bond market continues to price the next Fed move to be a cut, with the expectation that growth is slowing down.

But the stock market is trading cyclicals higher relative to defensives, with the expectation that growth is about to accelerate, see chart below.

This is not consistent. Either the bond market is wrong, and rates must move higher due to accelerating growth. Or, equity markets are wrong, and stocks have to move lower because growth is slowing down.

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Since December 2024, the share of China’s exports going to the US has declined from 15% to 9%, while the shares of Chinese exports to Asia, Europe, and Latin America have increased, see chart below.

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There is already upward pressure on inflation from tariffs, oil prices, and immigration restrictions, and the chart below shows the impact on inflation of a 10% and a 20% depreciation in the dollar. The bottom line is that we should see inflation move higher over the coming months; that is what the consensus expects, what the Fed expects, and what we expect.

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The strength of the US equity market and tight credit spreads in investment grade and high yield indicate that the dollar decline in the first half of 2025 was not driven by foreign selling of US assets.

Instead, the decline in the dollar was likely driven by hedging activity, as foreign investors, after decades of not hedging their US investments, began hedging some of their dollar exposures.

With Section 899 behind us and the Fed keeping interest rates higher for longer, dollar hedging activity is likely to slow down.

Our chart book, available here, discusses the upside and downside risks to the dollar.

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The pause on reporting delinquent federal student loans to credit rating bureaus has ended. Eleven million borrowers are impacted. This poses a downside risk to consumer spending, as more households will have to allocate funds to pay their student loans, and those who fail to restart payments will see their credit score decline.

We put together a chart book to get a better understanding of the magnitude of this headwind to consumer spending, and it is available here.

The bottom line is that there are not only headwinds to consumer spending from higher tariffs, higher oil prices, and a shrinking labor force but also from middle-income households having to spend more on servicing their debt and having more difficulties borrowing as credit scores decline.

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The recent rise in WARN notices points to an increase in the unemployment rate in June, see chart below. A WARN notice is a legal requirement for US employers to provide at least 60 days advance written notice to employees, their representatives, and government officials before conducting a mass layoff, plant closing, or relocation.

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