Weekly Market Update: September 29, 2025
The Federal Reserve is signaling two additional quarter-point interest-rate reductions before year’s end. These would follow the first interest-rate cut in nine months at the recently concluded September Federal Open Market Committee (FOMC) meeting. The loosening of the monetary reins comes amid growing worries about a weakening labor market.
The central bank’s dual mandate of maximum employment and price stability is becoming more challenging. Federal Reserve Chairman Jerome Powell admitted that a “risk-free path” to manage inflation and unemployment does not currently exist. Still, Mr. Powell noted that the balance of risk has tilted to the employment side, with minimal job gains over the summer months and the unemployment rate ticking higher. There also was a sizable downward revision to the 2024-2025 job gains. The bank seeks to avoid stagflation—a period where stagnant economic growth, high inflation, and rising unemployment occur simultaneously.
Inflation remains stubborn. And, there are fears that U.S. tariffs on imported goods might put additional upward pressure on prices this fall and during the all-important holiday shopping season. This bears close watching, as the consumer has been the linchpin in the most recent economic upcycle. Therefore, any weakness in the sector, which accounts for about two-thirds of gross domestic product (GDP), could potentially slow the pace of economic growth. Investors should note that the latest (August) reading of the Personal Consumption Expenditures (PCE) Price Index, the assessment of inflation most closely tracked by the Fed, was due to be released shortly after we went to press.
The fast-approaching third-quarter earnings season will provide more insight on the impact of the tariffs. To date, most of the extra costs have been absorbed by the importers. However, if corporate profit margins begin to suffer, many businesses may start to push more of the expenses along to the consumer. This might lead to a re-acceleration in inflation and complicate matters for the central bank, where disagreements on monetary policy already exist.
Conclusion: With the Federal Reserve on an interest-rate cutting course, the major equity averages recently established a number of record highs. Given this backdrop, but aware of the central bank’s stagflation concerns, we recommend maintaining a diversified portfolio consisting mostly of stocks and cash.
Source: ValueLine.com
