Baker Market Update 2025-10-31

“There are three things that I’ve learned to never to discuss with people: religion, politics and the Great Pumpkin.” – Linus van Pelt from It’s the Great Pumpkin Charlie Brown. For today’s Halloween edition, I’m also going to avoid most of those three things, except, I do have to make mention of the continued Government Shutdown. The US Government has now been shut down for 30 days, currently making it the second longest shutdown in US history. The longest was in December 2018 at 34 days. It is very likely the current shutdown will go beyond 34 days and become the longest in history. The last few weeks’ Baker Market Updates have been a little briefer as most of the economic data releases comes from various government agencies that are currently shutdown.

The Fed met this week as part of their regularly scheduled two days policy rate decision meeting this week. Markets were fully expecting the Fed to cut interest rates by 25 basis points, moving the Fed Funds Rate Range lower to 3.75-4.00%. There were two dissenters, Fed Governor Miran wanted a 50bp cut and Kansas City Fed President Jeff Schmid was in favor of no rate cut. Additionally, the Fed announced it will conclude its quantitative tightening program on December 1, 2025, by ceasing further reductions in its aggregate securities holdings. This marks the end of a multi-year effort to normalize their balance sheet after pandemic-era expansion.

With the market fully expecting the 25bp rate cut, most of the newsworthy headlines came from Chairman Powell’s press conference that started shortly after the rate cut announcement. One quote that pushed stocks into the red on Wednesday afternoon was Powell stating “A further reduction in the policy rate at the December meeting is not a forgone conclusion, far from it. Policy is not on a preset course.” Before those comments, Fed Funds Futures market were pricing in a 95% chance of another 25bp rate cut in December, however, a current look shows that same probability has fallen to 64%.

A handful of other private economic data points were released this week including the Conference Board’s Consumer Confidence. The index fell by 1 point to 94.6 in October from an upwardly revised September reading of 95.6. Economists were expecting the reading to come in unchanged from the previous month. Write-in responses to the survey showed that prices and inflation remained consumers’ biggest concern. Mention of tariffs declined again this month but remained elevated.

The Treasury and Bond markets are trading flat this morning after some volatility early this week with the Fed’s announcement. Next week’s additional insight into the labor market through the JOLTS report is likely to be delayed because of the continued government shutdown. Until then, have a Happy Halloween and be safe trick or treating!