Weekly Market Update: November 17, 2025
The Federal Reserve is walking a tight-rope heading into the December Federal Open Market Committee (FOMC) meeting. That is because recent data, though limited due to the federal government shutdown, have shown some problems on both sides of its dual mandate (more below). Wall Street is still anticipating a quarter-point cut to the benchmark short-term interest rate, despite commentary from Fed Chair Jerome Powell that another reduction before year end is not a foregone conclusion.
The labor market is weakening. Although there have been no statistics from the government, ancillary reports paint a cloudier picture for employment. Challenger, Gray & Christmas, a job placement firm, reported that U.S.-based employers cut 153,074 jobs in October, the biggest monthly figure since 2003. That report came on the heels of October data from the Institute for Supply Management (ISM) indicating that employment in both the manufacturing and non-manufacturing sectors is contracting. This environment is likely conducive to the Fed loosening the monetary reins. On the other hand…
Inflation, the other side of the dual mandate, is still running above the central bank’s comfort level. This was reflected in the September Consumer Price Index (CPI), which showed 12-month increases of 3.0% for the headline and core (excludes food and energy components) figures. The aforementioned ISM reports also showed the largest increase in the price of services in three years, though goods prices did decline. Not surprisingly, given the stubborn inflation and weakening labor conditions, the University of Michigan’s preliminary November reading on Consumer Sentiment fell nearly 30% year over year.
We consider that a December reduction to the federal funds rate is probable. Our sense is that the Federal Reserve will want to avoid the risk of stagflation, where slowing economic growth is accompanied by high unemployment and rising prices. The recent government shutdown will likely put a dent in the fourth-quarter gross domestic product (GDP) growth, which may force the Fed to use its monetary policy tools in support of the economy.
Conclusion: With the government shutdown nearing an end as of press time, a headwind for the financial markets was close to being removed. This, along with less-restrictive monetary policies, may pave the way for additional late-year gains for the major averages.
Source: ValueLine.com
