Monthly Economic Insights
Another rate cut, elevated inflation, further signs of weakening labor, and data gaps bring both clarity and caution
The U.S. economy is still navigating choppy waters. On one hand, the Federal Reserve took a decisive step at the end of October by cutting the federal funds rate by 25 basis points, bringing the target range to 3.75%-4.00%.
That marked the second reduction of 2025, signaling the Fed is increasingly concerned about the labor market and growth risks rather than inflation only.
On the other hand, inflation remains stubbornly above target. Consumer prices rose by 3.0% year-over-year in September, up from 2.9% in August, according to the latest Bureau of Labor Statistics release.
Core inflation (excluding food and energy) also rose by 3.0% over the last 12 months. At the same time, a government shutdown has delayed or curtailed several other key economic releases, leaving the Fed and market observers operating with less clarity than usual.
What this means in the near term
Because inflation remains elevated and GDP growth estimates robust (current Q3 Atlanta Fed GDPNow estimates are at 3.9%), the Fed is unlikely to unleash a rapid series of cuts. At the same time, weak labor data (and it appears to be weakening further in real time, with several large companies reporting layoffs recently: UPS, Target, Amazon, etc.) is giving it a license to ease modestly. After the rate cut today, markets are currently expecting another 25 basis points of rate cuts by year-end.
The data gap caused by the shutdown means the Fed will lean more on non-traditional indicators (satellite payroll numbers, private-sector surveys, inflation expectations) to guide policy. The lack of fresh jobs or GDP data could amplify risk if indicators surprise on the downside.
Businesses and consumers will continue to look for value. With inflation still at 3% and borrowing costs slowly coming down, companies that manage costs well and access capital efficiently will have an advantage.
At the same time, higher costs for food, energy, or housing (which remain sticky) could dampen consumer spending.
Rate cuts support equities and credit. Still, if elevated inflation lingers and the labor market weakens further, the trade-off becomes sharper: good for borrowers, uncertain for lenders, and complicated for growth-dependent companies.
Bottom line: The U.S. economy appears to be on solid footing, but questions remain (especially on the labor front). The Fed’s move to cut rates underscores a tilt toward supporting growth, yet inflation hasn’t fully cooperated. In this environment, steady execution and a focus on fundamentals matter more than grandstanding. Keeping an eye on how inflation, employment, and policy converge over the next few months — and being ready to adjust quickly as needed — will be critical.
— Marcus Scott, CFA, CFP®, Chief Investment Officer (CIO) for Country Club Trust Company, a division of FNBO.
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