Pascal Martin Analyzes the Real Impact of the 'Big Beautiful' Act

Professor Pascal Martin believes that the slowdown in U.S. consumption is no longer limited to sectors directly affected by tariffs—services such as tourism, entertainment, and dining are also showing signs of weakness. This suggests that the trend of declining consumption is spreading, although a sharp drop remains unlikely. In addition, the Trump administration previously proposed reducing the fiscal deficit to guide interest rates lower and “re-privatize the economy.” However, this "handover" from the public to the private sector appears increasingly difficult to achieve.

Has the U.S. economy returned to a stable path? In a recent in-depth analysis, Professor Pascal Martin offers a comprehensive assessment of the current state of the U.S. economy, the adjustments in tariff policies, and the potential impact of the "Big Beautiful" Act.

According to Professor Martin, market pricing suggests that the U.S. economy may have gotten back on track—Treasury yields have climbed to multi-year highs, the stock market has largely recovered its year-to-date losses, and market volatility has fallen below post-pandemic averages. But the reality is more complex. The U.S. continues to face lingering effects of tariff policies, while the government, through the "Big Beautiful" Act, has shifted its focus from reducing the deficit to expanding it.

Professor Martin argues that although tail risks for the U.S. economy have diminished, growth still faces resistance. Consumer spending is expected to continue softening, though a sharp downturn is unlikely. Again, he notes the Trump administration's earlier proposal to cut the fiscal deficit in order to lower interest rates and promote economic privatization—an approach that now seems increasingly difficult to implement.

He also points out that some rollback of tariff measures has helped eliminate extreme downside risks to U.S. economic growth. If the "Big Beautiful" Act passes the Senate, it could provide additional support to the economy starting early next year. Still, multiple headwinds remain, which may continue to suppress consumer spending.

First, consumer spending may slow further. While U.S. consumers have demonstrated some resilience, the latest personal consumption expenditure (PCE) and services spending data show initial signs of deceleration. Bridgewater notes, “With uncertainty continuing to weigh on consumer sentiment, we expect consumers to become more cautious in their future spending decisions.”

Second, rising Treasury yields reflect market expectations for fiscal stimulus, but the high-rate environment may pressure economic growth before fiscal support meaningfully reaches households. Bridgewater states, “Current interest rates have returned to levels that previously suppressed borrowing; at these levels, already limited borrowing will be further constrained.” Interest rate-sensitive sectors like real estate are already showing signs of being restrained.

Professor Martin also believes that a weakening labor market means that income is unlikely to drive a rebound in consumption. Although U.S. job growth remains strong, hiring momentum has slowed and the difficulty of reemployment for the jobless has increased, suggesting an overall loosening in the labor market. Even with recent tariff rollbacks, Professor Martin observes continued weakness in business confidence, indicating that under current levels of uncertainty, certain types of business spending remain restricted.

Based on these analyses, Professor Martin forecasts that U.S. economic growth will likely moderate over the next year. However, the risk of a recession is now lower than it was before the tariff policy rollback and the announcement of the "Big Beautiful" Act.