By Joy Wiltermuth
The idea of using collected tariffs for anything other than paying down the U.S.’s debt or funding its spending commitments isn’t terribly popular in the bond market
A Republican proposal that would deliver “tariff checks” to households is now part of the conversation about the stock market.
With stocks slipping from record-high levels, the market may now need so-called tariff checks for U.S. households to keep trucking along and the economy to keep growing.
The problem is that the bond market wouldn’t much like seeing collected tariffs turn into payments to households, given the recent tax cuts signed into law, the large U.S. debt load and uncertainty around inflation.
Yet lower-income families already look tapped out by higher interest rates and years of inflation – which peaked around 9% three years ago based on the consumer-price index, but has since stalled at closer to 3%, still above the Federal Reserve’s 2% target.
Add in tariff concerns, and recent data suggest the bulk of spending this summer came from higher-income households, or families earning at least $100,000 a year.
The “investor class” might be doing well with stocks, crypto (BTCUSD) and precious metals (GC00) trading near all-time highs, but the rest of the U.S. consumer base is under pressure, said Jimmy Chang, chief investment officer at the Rockefeller Global Family Office.
Chang sees tariff costs gradually being passed through to households, creating a more cautious and weaker consumer base into 2026.
Potential rate cuts from the Federal Reserve in September might provide some relief for borrowers and bolster risk appetite in stocks during the typically seasonally weak month ahead, he noted.
Yet a Republican-led proposal to send less wealthy households tariff checks could go even further, particularly if cash payments were to coincide with higher tariff costs that are expected to hit during the all-important holiday shopping season.
“If you have Washington paying at least $600 for every adult and child, for a family of four that’s at least $2,400,” Chang said. That sounds less like the earlier idea of sending “DOGE savings” checks out to households and more reminiscent of the government money sent to households during the pandemic, he added.
“If passed, that could stimulate consumption,” Chang said.
With tariff costs starting to bite and inflation still too high, a perhaps long-shot idea around tariff checks now appears to be taken more seriously.
See: Are you getting a $600 tariff rebate check? What to know as Trump, senator float the idea.
Big-box retail earnings
Investors have been closely tracking this week’s earnings from big-box retailers Target Corp. (TGT), Lowe’s Cos. (LOW) and Home Depot Inc. (HD) to gauge how households have been doing in the new tariff regime.
Consumer spending still drives the U.S. economy and has held up so far – with large home-improvement projects slow, but smaller ones picking up, according to Home Depot. Walmart Inc.’s stock (WMT) fell Thursday after the discount retailer reported a rare quarterly profit miss; its executives said U.S. sales growth was led by upper-income households.
The same might be said about the stock market. It has helped coax wealthier families who have seen extra-large equity gains over the past two years to keep spending and fueling the economy.
Homeowners with established careers and good income gains who were able to invest some of those earnings in the stock market have benefited from price appreciation, said Dave Goodson, head of securitized credit at Voya Investment Management.
“On the flip side,” he added, others people are “hanging on by their fingernails.” While the pain of inflation might now feel normal, for some households, higher egg prices can mean “that’s their last dollar.”
A concern about this rally has been that any lasting pullback in stocks could spook the investing class, and then derail the economy. After touching fresh record highs in August, the S&P 500 index SPX was up 8.4% on the year so far, the blue-chip Dow Jones Industrial Average DJIA was 5.3% higher and the Nasdaq Composite COMP was up 9.2% as of Thursday.
Tariff checks ‘at some point’
Treasury Secretary Scott Bessent said Tuesday he expects tariffs to bring in more than $300 billion this year, with an estimated $130 billion already collected as of mid-August.
While Bessent envisions tariff revenue first being used to chip away at the $37 trillion U.S. debt load, dividend checks to households may follow. “I think at a point, we’re going to be able to do it,” he said of such checks during an interview with CNBC. “We’ll start paying down debt, then, at a point, that can be used as an offset to the American people.”
The idea of using tariffs for anything other than paying down U.S. debt or funding the government’s spending commitments isn’t popular in the bond market. That means any tariff checks could backfire by causing yields to rise, which would push borrowing costs up even higher.
There are no guarantees that household tariff payments will happen. But investors also aren’t ruling them out, given President Trump’s focus on using his office to help keep Republicans in power in Congress after the midterm elections next year.
Read: America has 5 wealth classes. See where you fit in – and how much it takes to reach the upper echelons
Timing is everything
A weaker jobs market has been a critical focus for investors, the White House and the Fed. A big upswing in layoffs could spur aggressive Fed rate cuts to help shore up the economy. However, any notable uptick on the inflation front also could trigger higher bond yields.
Investors already are demanding more yield on longer-duration Treasurys BX:TMUBMUSD10Y than roughly a year ago, when the Fed starting lowering its short-term rate by 1% in 2024.
On the inflation front, Wall Street has the tricky job of trying to gauge what share of goods flowing into the U.S. now include tariffs. Higher costs for households had been slow to show up in economic data until recently.
“We expect the effective tariff rate in the U.S. to rise to near 17%, still well below the initial proposals in April, but well above levels from the beginning of this year,” said Sara Devereux, global head of fixed income at Vanguard, in emailed comments.
“As trade policy increasingly weighs on the economy, our base-case outlook anticipates a slowdown in growth – without tipping into a recession – and a rise in inflation through the balance of this year.”
Traders appeared pretty confident on Thursday that the Fed will lower rates in September, with the odds around 73% for a rate-cut of 25 basis points.
By the end of this year, Tony Rodriguez, head of fixed-income strategy at Nuveen, expects two rate cuts through December; inflation to move higher because of tariffs; and for the unemployment rate to reach 4.5%, up from 4.2% in July.
Should the jobless rate more quickly hit 4.5%, or hit 4.7% early next year, Rodriguez thinks that could prompt the Fed to adopt a more aggressive stance on cutting rates. “Speed and levels matter,” he said.
Read: Fed officials see inflation just around the corner – and think consumers will bear the burden, minutes show
-Joy Wiltermuth
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08-21-25 1545ET
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