The Federal Reserve has to make difficult decisions in the coming weeks. With economic data disrupted by a government shutdown and growing uncertainty as tariffs are making a comeback, the October 29th meeting could provide some direction for markets.
Understanding the Fed’s current predicament requires examining both its current standing and its potential pitfalls. While markets price in a 96.2% probability of a 25-basis-point rate cut, the reality behind closed doors reveals there’s still significant uncertainty about the way forward.
The current economic landscape creates uncertainty
With the anticipated October Fed meeting, which many investors expect will bring about further rate cuts, the signals are mixed. With the first rate cut since December 2024, which lowered the benchmark by 25 basis points, the Fed’s next move is proving more challenging than expected.
But what has happened since the surge in investor confidence post-September 2025? The economic landscape has changed significantly. A partial government shutdown that began on October 1st has sidelined nearly 750,000 government workers. This creates reporting uncertainty, as the Bureau of Labor Statistics remains shuttered, indefinitely delaying the September jobs report that typically guides Fed policy.
The current government shutdown does affect the upcoming Fed meeting, since policymakers will rely on incomplete labor-market data, potentially leading to inaccurate inflation, unemployment, and consumer spending figures. In turn, this can help lower interest rates in the short term, but could pose issues in the future.
Gold prices have surged over 48% year-to-date to $3,886 per ounce, while Bitcoin trades near all-time highs at $123,196. The Dow Jones and S&P 500 have reached record levels at 46,758.28 and 6,715.79, respectively, suggesting markets remain optimistic despite the uncertainty.
September’s meeting revealed divisions in opinion
September’s FOMC meeting showed there’s significant misalignment within the Fed. As members agreed on upcoming rate cuts, the meeting highlighted significant concerns about the pace and extent of the easing. The “dot plot” chart shows a razor-thin split of 10-9, with the majority favoring two more quarter-point cuts by year-end, while the minority preferred a more aggressive approach.
The newly appointed Governor Stephen Miran cast the sole dissenting vote, advocating a 50 basis point cut rather than the approved 25 basis point reduction. The division shows broader concerns regarding dual mandates, as most participants observed increased downside risk to employment and diminished upside risks to inflation. This would help justify a move toward more neutral policy settings. However, some officials noted that financial conditions suggested monetary policy may not be particularly restrictive, warranting caution in future changes.
Contrasting views shape policy debate
The divergent perspectives among Fed officials highlight the complexity of current monetary policy decisions. The unpredictable nature of the current administration, with the recent 100% tariffs on Chinese goods, creates an unbalanced approach to monetary easing. New York Fed President John Williams emphasized that policymakers are paying close attention to a slowdown in the labor market. What’s more, rate cuts should be designed to achieve a better balance between inflation and employment goals.
However, as Fed chair Jerome Powell highlighted, government volatility creates uncertainty for policy makers and future rate cuts, as inflation driven by tariffs could affect the Fed’s stance on monetary easing. Fed Governor Michael Barr leans heavily into inflation risks despite acknowledging labor market vulnerabilities. “The FOMC should be cautious about adjusting policy so that we can gather further data, update our forecasts, and better assess the balance of risks,” Barr argued. He forecast that underlying inflation will rise above 3% by year-end and warned that Americans shouldn’t wait until 2027 for inflation to return to the 2% target.
Market implications across assets
The current uncertainty at the Fed influences how investors use different asset classes and how they assess their risks relative to them. Lower interest rates have weakened the U.S. dollar and pushed investors towards higher-yield assets, which, at the same time, are higher risk. Bitcoin and Ethereum, in this case, would be better positioned as an investment vehicle, as past cycles show Bitcoin has gained over 5% in short windows when rate cuts were expected.
Similarly, the stock market has responded positively to rate cut expectations, with major indices reaching record highs. However, while these indices showed growth—primarily driven by the AI narrative—most of the expectations have been priced in. As we’ve seen, rate cuts have not immediately catalyzed explosive growth; instead, the S&P 500 has posted insignificant gains.
What’s worth noting is that the Fed is prioritizing the labor market over stock appreciation. That said, traditional safe-haven assets like gold continue their impressive run, gaining nearly 50% year-to-date as investors seek protection against both inflation and policy uncertainty. Still, the crypto market showed particular sensitivity to the Fed’s policy shifts, with Bitcoin trading near the top before falling below $110,000, following recent remarks by President Trump imposing tariffs on Chinese goods.
Navigating the path forward
The October meeting is taking place under extraordinary circumstances that may yield unexpected outcomes. Without crucial labor market data due to the government shutdown, uncertainty driven by new tariffs and a volatile stock market, Fed officials have a difficult task ahead.
While the market expects a 25 basis point cut, it’s not yet clear whether the Fed can confidently cut rates and fuel another potential rally in October. For investors, this environment demands careful portfolio positioning across asset classes.
