Economy & Markets
Overview
Coming into September, all eyes were focused on the upcoming Fed meeting and the potential impact of a long-awaited rate cut on the financial markets and broader economy. The Fed delivered a 0.25% rate cut at their September meeting as expected. The vote was nearly unanimous with eleven of the twelve voting members of the Fed supporting the quarter point cut.
The lone dissent came from the recently appointed Fed Governor, Stephen Miran. Miran voted for a more aggressive cut of 0.50%. While Miran received senate confirmation the day before the Fed meeting, he has so far refused to resign from his position within the Trump administration as the chair of the Council of Economic Advisors. Instead, he is taking an unpaid leave of absence. It is likely that Miran will continue to call for aggressive cuts.
The latest dot plot shows an expectation for two additional cuts in 2025. However, looking out to future years, there is a much wider dispersion of views. The future path for rates will be determined by how the labor market and inflation data trend from here.
In Powell’s comments following the rate cut, it was clear there is growing concern about the labor market, but he defended their decisions up to this point. “I think we were right to wait and see how tariffs and inflation and the – and the labor market evolved. I think we’re now reacting to – you know, to the much lower level of job creation and other evidence of softening in the labor market and saying, well, those risks are maybe not fully balanced but moving in the direction of balance now, and so that warrants a change in policy.”1
The labor market appears to be the driver of this first cut and continued weakness regardless of whether inflation ticks up will provide the Fed with cover to make additional cuts. Only time will tell if the Fed’s timing of beginning cuts was too late, too soon or Goldilocks’ just right.
Tariffs
In its latest economic report, the Organization for Economic Cooperation and Development (OECD) reported that “US bilateral tariff rates have increased on almost all countries since May. The overall effective US tariff rate rose to an estimated 19.5% at the end of August, the highest rate since 1933. The full effects of tariff increases have yet to be felt – with many changes being phased in over time and companies initially absorbing some tariff increases through margins – but are becoming increasingly visible in spending choices, labor markets and consumer prices.”2
Alongside the increased tariffs, a reversal in the downtrend of inflation has been observed. The rise has not been steep or risen to a concerning level yet, but this will be monitored closely by the Fed and administration. Growth is slowing in the U.S. and abroad with the OECD projected global GDP growth to decrease to 3.2% in 2025 and 2.9% in 2026 from a 3.3% rate in 2024. Some of the reasons for this are the ceasing of the front-loading manufacturing to build inventory in advance of tariffs going into effect along with the increased tariff rates and uncertainty that are likely to reduce investment and trade.
As discussed in previous commentaries, tariff levels on industries and countries remain very fluid. Markets and corporations will be watching talks between the U.S. and China closely over the next month as the next deadline approaches. An escalation of the trade war between the two countries was paused for an additional 90 days during August.
Geopolitics
Putin and Russia continued to push boundaries as Russian jets and drones violated the airspace of Poland and Estonia, two members of NATO. NATO and its members have vowed to defend both countries. Also, Trump came out and stated the U.S. would help defend Poland and the Baltic states. As Russia continues its war on Ukraine, calls for additional sanctions by the U.S. and its allies are growing louder. As stated in previous commentaries, oil prices are the main investment that could be affected by the direction of this war.
Trump went further in comments during the UN General Assembly. In a social media post, he stated “With time, patience, and the financial support of Europe and, in particular, NATO, the original Borders from where this War started, is very much an option. Why not?… Ukraine would be able to take back their Country in its original form and, who knows, maybe even go further than that! Putin and Russia are in BIG Economic trouble, and this is the time for Ukraine to act.” This was a shift from comments over the past few months. Zelenskyy acknowledged this and was appreciative of the renewed support. Time will tell whether Trump was correct in his current assessment.
Government Shutdown
Here we are again… approaching a deadline to avoid a government shutdown. As of the writing of this commentary, a deal has not been reached to avoid a shutdown although this could occur before this is published on October 1. The government will run out of funding when the clock strikes midnight on September 30. In order to avoid a shutdown, Congress must pass either a short-term funding bill (continuing resolution or CR) or approve twelve separate full-year funding bills. It is unlikely that they will be able to pass the individual funding bills before the deadline.
However, unlike the One Big Beautiful Bill Act, funding bills need at least 60 votes to pass in the Senate. Republicans will need Democrat votes to pass any bill. As with other recent threats to government shutdowns, we do not believe this will amount to much but could cause disruptions if a CR is not passed by the deadline.
Editor’s Note: The government shutdown on October 1 as Democrats and Republicans in the Senate could not come to an agreement on a CR to keep the government open. As mentioned above, we do not expect a shutdown to have a long-term effect on the markets if it follows the path of the recent ones. However, if this were to become a more protracted shutdown well-beyond the 35 days experienced during Trump’s first term in 2018, markets could become more volatile, elevating risks to downside. Regardless of how long the shutdown lasts, many government employees are being negatively affected via furloughs or delayed payments of salary. Many of these employees also experienced the chaos of DOGE cuts earlier this year. The below graphic from Bloomberg shows what areas of the government are expected to be affected during the shutdown.
Markets
U.S. equities continued their climb in September alongside international stocks and gold. Gold and U.S. stocks hitting new all-time highs together was observed in late 2007 and the summer of 2020 before being a consistent theme in 2024 and 2025.
⮚The three major U.S. equity indices (S&P 500, NASDAQ and Dow), hit all-time highs on three consecutive days ending on September 22. The S&P 500 was up 14% year-to-date through September 26. However, international stocks maintained their lead over the U.S. rising almost 25% YTD through September 26 with the declining value of the U.S. dollar providing a significant tailwind.
⮚Q3 Earnings Season kicks off in a few weeks. According to FactSet as of September 26, “the estimated (year-over-year) earnings growth rate for the S&P 500 is 7.9%. If 7.9% is the actual growth rate for the quarter, it will mark the ninth consecutive quarter of earnings growth for the index.” Corporate earnings continue to show positive momentum which is the ultimate driver of long-term stock returns.
⮚In a similar move to last year, the 10-year treasury yield actually moved in the opposite direction of the Fed decision. The 10-year treasury yield closed at 4.04% the day before the Fed made their decision to cut rates. Over a week later, the yield closed at 4.16% on September 26. Similar movement was observed at other parts of the treasury yield curve beyond one year. Mortgage rates have also remained elevated despite the Fed rate cuts. Most forecasts expect for 30-year mortgage rates to remain between 6 and 7% through the remainder of 2025.
Economic Trends
⮚The University of Michigan consumer sentiment dropped to 55.4 in September. This was well below market expectations for 58. This was the second consecutive monthly decline and the lowest level since May. Tariffs were a key issue cited by respondents. Also, year-ahead inflation expectations remained at 4.8% while the five-year expectations increased for the second straight month to 3.9% from 3.5%.
⮚Headline Inflation (CPI) rose to 2.9% while Core Inflation came in at 3.1%. As with the evaluation of many things in life, two things can be true at the same time. On the one hand, inflation is trending in the wrong direction with increased tariffs being one of the causes of this rise. At the same time, inflation is still sitting at only 3%, which is not high by historical standards. Investors, consumers and economists will be monitoring Q4 data closely to understand whether companies begin passing on a larger portion of the tariffs being imposed on the end consumer. If this happens, inflation may continue to rise, which could spook markets if it approaches 4%.
⮚Labor Market Update: According to the U.S. Bureau of Labor Statistics (BLS), the US economy added 911K fewer jobs in the twelve months through March of this year than initially reported. This was the largest downward revision since at least 2000. Nonfarm payrolls increased only 22K in August, well below the forecast for 75K. The unemployment rate also rose 0.1% to 4.3%. The continued weakening in labor market data will likely lead to the Fed making additional cuts during the final quarter of the year.
⮚Q2 GDP growth was revised up a second time to 3.8% from a previously reported 3.3% and an initial print of 3%. This upward revision was driven primarily by consumer spending and a reduction in the trade deficit. The revised figures indicate the strongest growth rate in almost two years showing the economy remains resilient. Given the effects of tariffs on GDP in the first half of the year as companies scrambled to react to Trump’s April 2nd tariff announcements, investors and economists will be closely watching Q3 and Q4 growth rates which may show a clearer picture of how the economy is doing.
SFG’s Take: SFG continues to focus on diversification across asset classes including private alternatives which include infrastructure, real estate and credit. We believe the next few months are likely to bring more volatility as the global trade war continues and the initial effects of the tariffs that have already been applied flow through the global economic system.
As we have discussed, it is imperative that an investor be in the correct risk tolerance for their own personal situation. With the recovery in equity markets during the summer, now may be a good time to revisit your current strategy if you have concerns. Please do not hesitate to reach out to your wealth advisor.
Sources:
- The Federal Reserve, Transcript of Chair Powell’s Press Conference September 17, 2025, as of September 17, 2025.
- OECD.org, OECD Economic Outlook Interim Report September 2025, as of September 2025.
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