Economic and Market Commentary – October 2025

Typically, October is referred to as “spooky season” by Halloween enthusiasts who revel to engage and participate in the cultural holiday’s uncanny traditions and festivities. In 2025, October will forever be enshrined as “shutdown season”, as the U.S. government shutdown that commenced on October 1 lasted throughout the month’s entire 31-day span. An unwelcomed by-product of the month-long shutdown, fundamental and crucial official government economic data collection and releases had been suspended, causing economists, strategists, investors, and market participants alike to rely mainly on private sector accumulated data. As the calendar was set to flip to November and U.S. residents frolicked around their respective neighborhoods in earnest seeking candy and other delectable treats, there was still no imminent end to the shutdown in sight. Members of both Congressional chambers continued to wrangle about what provisions to include and exclude in a continuing resolution that would ultimately reopen and fund the federal government. All the while, paychecks for federal government employees had been withheld, daily disruptions to air travel began to intensify, and several essential federally-funded programs that provide assistance to those in need were set to be curtailed and/or culled all together.

On October 29, at the conclusion of the Fed’s penultimate (seventh) policy meeting of the calendar year, the FOMC enacted its second (widely telegraphed) 25 basis point rate cut to its overnight benchmark rate in 2025, lowering the federal funds target rate range to 3.75% - 4.00%. While 10 of 12 FOMC voters were in favor of a second 25 basis point gradual reduction, this particular monetary policy decision saw two dissents. Similar to September, Federal Reserve Board Governor Stephen Miran opted for a 50 basis point abatement to the target rate range. Contrarily, Federal Reserve Bank of Kansas City President Jeffrey Schmid would have preferred no change to the range.

In addition to the interest rate decision, the Fed also made a long-anticipated announcement on the termination of its approximately 3.5-year quantitative tightening (balance sheet runoff) program. Commencing on December 1, the central bank will halt the reduction of its aggregate securities holdings. To be more specific, the Fed will cede the unwinding of its Treasury securities, but will continue the runoff of agency mortgage-backed securities, and reinvest the proceeds in Treasury Bills, endeavoring to: 1. Return to a portfolio composition consisting of primarily Treasury securities in general, and 2. Decrease the average duration of its Treasury holdings (assets) to better align with the average duration of outstanding Treasury securities (liabilities) issued by the U.S. Department of the Treasury. The timing of this decision, deemed earlier than expected by some, was in reaction to an adverse tightening in money market conditions that had been experienced over the past several weeks, according to Chairman Powell. Short-term funding costs (interest rates) had been on the uptick while liquidity had ostensibly been subsiding.  

In his post-meeting press conference, Chairman Powell stated, “In the committee’s discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.” As both sides of the Fed’s dual mandate remain in stark contention, Fed policymakers’ deliberations between employment vs. inflation bodes to be a prevailing subject.

U.S. Treasury yield curve had a modest bull steepening bias as 1m – 3m tenor yields endured double-digit basis point declines, while all other tenors saw single-digit movements on the backdrop of October’s 25 basis point rate cut. Future rate moves, however, are less certain.

2-year/10-year spread: 50 basis points

3-month/10-year spread: 26 basis points

2-year/5-year spread: 11 basis points

3-month/30-year spread: 84 basis points

U.S. Treasury Yield Curve Source: Bloomberg

October 2025 Macroeconomic Highlights

Inflation, Expectations, and Consumer Sentiment¹:

CPI: 3.0% year-over-year (+0.3% month-over-month); Core CPI: 3.0% year-over-year (+0.2% month-over-month)

PCE: 2.7% year-over-year (+0.3% month-over-month);Core PCE: 2.9% year-over-year (+0.2% month-over-month)

PPI: 2.6% year-over-year (-0.1% month-over-month); Core PPI: 2.8% year-over-year (-0.1% month-over-month) Core PPI less trade services: 2.8% year-over-year (+0.3% month-over-month)

Inflation Expectations: 1-year horizon: 3.4%, 3-year horizon: 3.0%, and 5-year horizon: 3.0%

Consumer Sentiment: 53.6 vs. 55.1 in September 2025; Current Conditions: 58.6 vs. 60.4 in September 2025

Consumer Expectations: 50.3 vs. 51.7 in September 2025

Labor Market²: The U.S. economy added +22,000 nonfarm payrolls in August, well below the +75,000 expected by economists surveyed by Bloomberg. Job gains in health care (+31,000) and social assistance (+16,000) were partially offset by losses in federal government (-15,000), wholesale trade (-12,000), and manufacturing (-12,000). 

• U-3 official unemployment rate: 4.3% vs. 4.3% expectation: +0.1% from July 2025.

• U-6 unemployment rate (marginalized, part-time workers for economic reasons): 8.1% (+0.2%).

• Labor force participation rate: 62.3% (+0.1%); Employment-to-population ratio: 59.6% (unchanged).

• Average hourly earnings for private nonfarm payrolls rose 10 cents to $36.53 (+0.3% month-over-month, +3.7% year-over-year).

• Revisions: July 2025 lifted +6,000 to +79,000; June 2025 slashed -27,000 to -13,000.

Gross Domestic Product (GDP)³: According to the third and final estimate, real GDP increased at an annual rate of +3.8% in the second quarter of 2025 vs. a decrease of -0.6% in the first quarter of 2025.

• Consumption: +2.5%; GDP Price Index: +2.1%; PCE Price Index: +2.1%; Core PCE Price Index +2.6%.

• Real disposable personal income: +3.1% vs. +2.3% in the first quarter of 2025.

• Personal savings rate as a percentage of disposable income: 5.3% vs. 5.2% in the first quarter of 2025.

• Average of Real GDP and Real GDI: +3.8% vs. +0.2% in the first quarter of 2025.

Housing Market⁴: Existing-home sales expanded +1.5% (month-over-month) from August to a seasonally-adjusted annual rate of 4.06 million in September. Month-over-month sales in the West, Northeast, and South, advanced +5.5%, +2.1%, and +1.6%, respectively, while sales in the Midwest retreated -2.1%.

• Year-over-year sales improved +4.1%, up from 3.90 million in September 2024.

• Total housing inventory registered 1.55 million units, +1.3% from August, and +14.0% from one year ago (1.36 million units). Unsold inventory sits at a 4.6-month supply at the current sales pace.

• The median existing-home price for all housing types was $415,200, +2.1% from September 2024 ($406,700), as prices rose in all four major U.S. regions.

• Average commitment rate for a 30-year, conventional, fixed-rate mortgage: 6.17%.

• New Home Sales: 800,000 (+20.5% month-over-month).

***Due to the ongoing U.S. government shutdown, items highlighted in yellow are from September data releases.***

1 Source: Bureau of Labor Statistics (BLS), U.S. Department of Commerce, Federal Reserve Bank of New York – Survey of Consumer Expectations, and University of Michigan Surveys of Consumers

2 Source: Bureau of Labor Statistics (BLS)

3 Source: Bureau of Economic Analysis (BEA)

4 Source: National Association of Realtors (NAR), U.S. Census Bureau, and The Department of Housing and Urban Development

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