In the August 2025 and first edition of CA2BE’s market review, we unpack the macro and market forces shaping portfolios. This market review is aimed at prospective and current CAs and finance professionals by delivering market insights in order to prepare for the future in terms of personal investment and saving strategies.

The Fed Put Reloaded: Real Assets Back in Fashion

Even though there’s a lot of global uncertainty, stock markets are still going up. Why?
Because investors believe that the US central bank (the Fed) will cut interest rates quickly if the economy gets into trouble. This belief is often called the “Fed put.”

At the same time, the US government is spending a lot of money, which could make it harder for the Fed to fight rising prices (inflation). That’s called fiscal dominance – when government spending becomes more powerful than the central bank’s efforts.

Because of these two things:

·        Interest rates may stay low

·        Inflation could go up

So investors are avoiding cash and bonds (which lose value when inflation rises) and putting their money into real assets like:

·        Stocks (equities)

·        Raw materials (commodities)

·        Gold

·        Bitcoin 

Also, since Trump is gaining influence, people think the Fed will become even more willing to cut rates, even if prices are already high.

Tariffs, Immigration & Inflation: Hidden Dangers for the Economy

The US has introduced higher and more widespread taxes (tariffs) on imported goods than people expected. For example:

·        A 15% tax on goods from the EU

·        A 100% tax on goods from Russia 

These tariffs make imported goods more expensive, which pushes prices up - especially for important materials like copper.

On top of that:

·        The US is reducing immigration, which means fewer workers, and that can slow down the economy and push wages up.

·        Trade is slowing down in the second half of 2025, after a strong start earlier in the year.

·        Investors might be underestimating how much prices will rise (inflation).

All of this creates more risk for the economy than people might realize.

South Africa’s Inflation Target Shake-Up

The South African Reserve Bank (SARB) wants to change how it manages inflation — that is, how much prices in the economy are allowed to rise over time.

Right now, SARB aims to keep inflation (the rate at which prices go up) between 3% and 6%. This gives them some flexibility, especially during tough times. The SARB now wants to tighten this target. Instead of a flexible range (3–6%), they want a single target of 3% – a much stricter rule.

he SARB believes that a stricter, lower target would help:

1. Keep prices more stable and predictable: When people and businesses know inflation will stay low, they can plan better and budget more accurately.
2. Lower borrowing costs: If inflation is expected to stay low, lenders will charge lower interest rates, which reduces the cost of government and private borrowing.
3. Boost the economy in the long run: With stable prices and lower interest rates, investment and economic growth could increase over time.

But There Are Risks

This isn’t an easy change. There are real downsides, especially in the short term:

• Slower economic growth: A tighter inflation target usually means higher interest rates, which could make it harder for people and businesses to borrow and spend.
• Government finances under pressure: Slower growth means the government could collect less tax revenue, making it harder to pay its debts or fund public services.
• Public resistance: People (like workers and unions) may still expect wage increases of 5% or more, and politicians may not support a plan that causes short-term pain.

The Dollar Slide: Why the US Dollar Is Weakening Even Though the Economy Looks Strong

At first glance, things look good in the US:

·        The economy is growing well

·        Technology (especially AI) is boosting productivity

·        Businesses are investing and hiring 

So… why is the US dollar getting weaker? Let’s break it down.

More countries, especially emerging markets, are slowly reducing their reliance on the US dollar:

• They’re using other currencies (like the Chinese yuan or the euro) to trade oil, gas, and other goods.
• They’re diversifying their foreign reserves (the "emergency money" countries keep).
• Some are even building digital payment systems that don’t involve the dollar.

This reduces demand for the US dollar, which weakens its value over time.

In the past, the US government said it supported a strong dollar, meaning they wanted it to be worth a lot compared to other currencies. Now, that’s changing.

• The new definition of a “strong dollar” focuses more on keeping global demand for the dollar, not on keeping it expensive.
• The US Treasury is also issuing more short-term debt (called treasury bills), which floods the market with dollars, and adds inflation pressure.

This shift in strategy leads to a weaker exchange rate for the dollar.

If the US central bank (the Fed) starts cutting interest rates, it becomes less attractive for foreigners to hold US dollars or US assets because they’ll earn less return. Lower rates = lower demand for dollars = weaker dollar.

The US government is spending heavily (fiscal spending) on infrastructure, defence, incentives, and more.
This big spending adds to fears of inflation (rising prices), which also hurts the value of the dollar over time.

In Simple Terms: Even though the US economy is strong, investors and governments around the world are using the dollar less, expecting lower interest rates, and reacting to big government spending – all of which are pushing the dollar's value down.

China’s Balancing Act: Strong Growth, But Prices Are Falling

In the second quarter of 2025, China’s economy grew by 5.2% compared to the same time last year, a healthy growth rate.

But there’s a problem: prices are still falling in many parts of the economy. This is called deflation, and it can be dangerous because it:

·        Discourages people from spending (they wait for even lower prices)

·        Hurts business profits

·        Slows down overall economic activity

What’s going well in China? Exports (selling goods to other countries) are still doing well and the industrial sector (factories, manufacturing) is holding up.

What’s Holding China Back? The property market is struggling – fewer people are buying or investing in real estate. Consumers aren’t spending – people are saving instead of shopping, partly because they feel uncertain about the future.

To stop deflation, China is:

·        Making borrowing cheaper and injecting cash into the system through monetary easing

·        Giving people incentives to spend on goods like cars and appliances (vouchers and rebates)

·        Backing strategic industries, especially technology and manufacturing by encouraging banks to provide long-term credit to advanced manufacturing and tech firms.

·        Stopping price-cutting wars among firms that hurt profits and push prices lower (Regulators plan pricing law reforms and sector guidance)

·        Watching financial risks closely, especially local government debt. In early August, Beijing formed a new financial stability committee within the PBOC (Peoples’s Bank of China – China’s central bank) to manage local government debt risks 

These are all parts of a broader effort to boost demand, lift prices, and stabilize growth.

Final Word

Monetary and fiscal policy are no longer working in isolation – and investors are taking note. While real assets are in favour for now, the evolving macro narrative demands constant vigilance.

 

Disclaimer:
The content provided on this blog is for informational purposes only and does not constitute financial advice, investment recommendations, or an offer to buy or sell any financial instruments. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions. The author assumes no responsibility or liability for any errors or omissions in the content or for any actions taken based on the information provided.