October 2025 Mid-Month Market Update

A Spooky Beginning to October

The U.S. government shutdown has now entered its third week, and on Tuesday, Speaker Johnson cautioned that it could become the longest shutdown in history. Adding to market uncertainty are renewed trade tensions after President Trump threatened an additional 100% tariff on Chinese imports in response to Beijing’s new export restrictions on rare earth materials. Together, these developments have made for a “spooky” start to October. 

The most significant market mover so far has been the tariff threat announced on October 10^th (see equity index performance chart below). Despite the initial volatility, markets have largely stabilized and appear to be taking the headlines in stride. Risk assets have been resilient with credit spreads little changed, and the Nasdaq has managed to post a modest gain month-to-date. Front-end Treasury yields out to one year are mostly unchanged, while maturities from two to thirty years have rallied approximately 10–12 basis points, on average. 

One clear standout has been gold, which surged to record highs and is now trading above $4,000 for the first time. Heightened concerns over trade conflicts with China, combined with rising expectations for additional Fed rate cuts, have significantly boosted demand for the metal.  

Dallas Fed: Fewer Jobs Needed to Keep Unemployment Low

The Dallas Federal Reserve economics team recently estimated that the number of new jobs needed each month to keep the U.S. labor market in balance—known as break-even employment—has fallen sharply due to a reversal in immigration flows and a cooling in labor force participation. After peaking at around 250,000 jobs per month in 2023, the break-even level has likely dropped to roughly 30,000 in mid-2025. This shift means that the pace of job growth needed to hold the unemployment rate constant could be much lower, and that today’s slower job growth may not be a sign of economic weakness and could be consistent with a stable labor market. The estimates also highlight the growing importance of real-time demographic data in understanding labor dynamics and guiding policy. 

Powell: Policy Path Unchanged Despite Data Delays

In remarks this week, Fed Chair Powell left the door open for a rate cut at the October 29^th FOMC meeting. He reiterated that policymakers face difficult trade-offs as they weigh the risk of ending the inflation fight too early against the risk of acting too late to support a cooling labor market. Powell acknowledged delays in economic data caused by the government shutdown but emphasized that the Fed monitors a broad range of indicators. Based on that information, he noted that “the outlook for employment and inflation does not appear to have changed much since our September meeting four weeks ago.” 

Despite signs of softening in the labor market, Powell said recent economic data has “surprised to the upside,” highlighting the upward revision to Q2 GDP and expectations for another solid reading in Q3. “Growth in economic activity may be on a somewhat firmer trajectory than expected.” 

As of October 15, 2025, the fed funds futures market is pricing in nearly a 100% probability of 25 basis point rate cuts at both the October and December FOMC meetings.