Commonwealth

“If you are driving in a fog, you slow down.” — Fed Chairman Jerome Powell, October 29, 2025 

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What does a data-dependent Fed do when the data isn’t available? In this month’s episode of the Market Observatory, Sam and I discuss how the government shutdown is affecting the central bank and investors, including:

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As of midnight Tuesday, the U.S. government shut down, as lawmakers couldn’t reach an agreement on a short-term bill to continue funding government expenditures. Currently, none of the 12 appropriations bills have been passed. This is the first shutdown since December 2018. There is certainly a human element to consider, as many government workers will be furloughed and others will continue to work without pay. Benefit payments and tax collections will continue. 

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September was another positive month for markets, as the S&P 500, Dow, and Nasdaq set new record highs. The international story was similar, with developed and emerging markets gaining for the month. Short-term interest rates also fell in September, as the Fed resumed cutting rates at its mid-month meeting. Markets anticipate one or two additional rate cuts by year-end.

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This week’s Fed meeting resulted in a much-anticipated interest rate reduction of 25 bps, to a range of 4 percent to 4.25 percent. This move followed a nine-month pause in its rate-cutting cycle, which began a year ago. Historically, equity markets have responded favorably to rate cuts after a pause of six months or more. But it’s been a while since we last saw this pattern. The Fed has not resumed a reduction cycle after a lag of that duration since July 2003. Markets have changed a lot since then. 

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With the latest jobs data weaker than expected, many—including the equity markets—are counting on a rate cut at the Fed’s next meeting. In this month’s episode of the Market Observatory, Sam and I discuss what’s ahead, including:

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