Financial News for the Week of October 10th, 2025

Up until Friday, markets had been relatively calm amid the ongoing government shutdown, which has entered its 10th day. President Trump’s threat to increase tariffs on China this morning, in response to China’s export controls on rare-earth metals, has upended that. President Trump has gone so far as to declare he is not interested in meeting President Xi in person as previously scheduled for the end of the month, leading to a sharp sell-off in US equities and pushing Treasury yields lower. Markets stoically withstood the failure of seven separate proposals to re-open the government, but the possible breakdown of U.S.-China trade negotiations may be too much to bear. If that wasn’t enough, the end of the shutdown is not clearly in sight. The Senate is now adjourned until October 14, which all but guarantees that military members will miss a full pay cycle, an unprecedented development.

The outlook for the shutdown is not the only thing that is cloudy. The government shutdown means that official economic data are not being published, and policymakers, businesses, and households are unable to see new data on the state of the economy. Various private-sector groups have produced estimates of what happened to employment in September, shown in Chart 1. This was the key piece of data which was due to be published last Friday. While these alternative estimates generally suggest the labor market continued to cool through September, these measures are at best imperfect proxies for the official data. As for what data we do have this week, the preliminary reading of the University of Michigan’s consumer confidence ticked a touch higher in October. However, expectations on the future outlook continued to slide for a third consecutive month, likely driven by the softening labor market and still elevated uncertainty on trade policy.

Several members of the FOMC spoke this week, offering some insight into their thinking amidst the shutdown. New York Fed President Williams indicated that the lapse in government data would not deter him from further easing the policy rate at the Fed’s coming meetings. Meanwhile, other speakers continued to reiterate prior views. Kansas City Fed President Schmid voiced concern about inflation, while Miran, the only FOMC member to vote for a larger 50 basis point rate-cut at the last meeting, again indicated how he expected inflation to moderate. It is little surprise that market pricing at the next Fed meeting has remained relatively unchanged through the government shutdown. Expectations for further easing at a moderate pace are in line with the general view we observed in the FOMC minutes released this week, that interest rates are currently moderately restrictive and risks have shifted somewhat to the downside.

Normally, we would be looking ahead to next week’s release of CPI for more information on how prices are reacting to tariffs, but we are following the shutdown. We will also be closely watching trade negotiations between the U.S. and China to see what comes of today’s escalation.