US Economy Surges on Tariff Refunds, GDP Tops 4%

**Implied Volatility / Movement:** NEUTRAL Tariff refunds are a significant tailwind for the U.S. economy, contributing to a projected 4.3% GDP growth rate for the current quarter. This surge contrasts sharply with the 1.5% and 2.1% growth seen in the prior two quarters, which were impacted by factors like high AI-related imports. The refunds, which represent about 60% of collected import tax revenues, are combining with other positive drivers such as AI spending, tax cuts, and manufacturing reshoring. This confluence of factors suggests robust economic momentum that may be underestimated by market participants. Economists note that recent weak jobs data, including a reported loss of 23,000 jobs, might be attributable to seasonal adjustments, with adjusted figures pointing to 70,000 job additions. Low jobless claims and rising job openings further support a view of underlying economic strength. The market's underestimation of this growth could lead to interest rates remaining higher for longer.

### Money Play Tariff refunds are bolstering corporate earnings and could influence investment strategies. Companies receiving these refunds have options to reinvest in business, particularly in AI and technology, or return capital to shareholders. Retailers are using these funds for promotions and to offset supply-chain costs. Some businesses are also working with brands to recoup tariff money through future purchase agreements.

### Executive Thesis The U.S. economy is experiencing a significant growth acceleration driven by tariff refunds, which are bolstering corporate profits and contributing substantially to GDP. This positive economic backdrop suggests that interest rates may remain elevated for an extended period as the market reassesses growth expectations.

### The Print GDP growth is projected to reach 4.3% in the current quarter, a substantial increase from 1.5% in the second quarter and 2.1% in the first quarter. A significant portion of this uplift is attributed to tariff refunds, which account for about 60% of collected revenues from import taxes. Economists also noted that despite a reported loss of 23,000 jobs in the latest employment figures, adjusted data suggests an addition of 70,000 jobs, aligning with Wall Street consensus.

### Market Reaction No specific market reactions to this print were ### What It Means for Policy & Positioning The robust GDP growth and other positive economic indicators suggest that the Federal Reserve may maintain higher interest rates for an extended period. The strong growth trajectory indicates that the economy is resilient, potentially reducing the urgency for immediate rate cuts and reinforcing a higher-for-longer interest rate environment.

### Next Calendar Watch No further economic events were specified