Weekly Update 10/10/2025: Fed Minutes Point to Potential Further Rate Cuts this Year as the US and China Jockey for Position Ahead of Trade Talks this Month
- IBM announces deal to integrate Anthropic’s Claude family of large language models into its software portfolio
- ABB agrees to sell its industrial robots unit at an enterprise value of almost $5.4 billion to SoftBank Group Corp.
- Alphabet makes headlines this week
Domestic Economic News
With the government shutdown continuing there was very little economic releases from the US government to analyze this week. The federal government logged a $1.8 trillion budget deficit for the 2025 fiscal year, little changed from 2024 despite a surge in tariff revenues, according to the Congressional Budget Office. The shortfall for the year that ended Sept. 30 was just $8 billion less than 2024, the nonpartisan Congressional Budget Office said in a release on Wednesday. While the Treasury Department issues the official tally for monthly and annual budget figures, plans for publishing the September monthly and 2025 fiscal-year data may be affected by the current federal government shutdown. Meantime, the CBO estimates offer a look at a fiscal picture that economists say is troubling at a time of economic expansion. The agency said that while revenues climbed by $308 billion, or 6%, spending advanced by an estimated $301 billion, or 4% — propelled by categories including interest on the public debt, which surpassed $1 trillion for the first time. President Donald Trump’s tariff hikes helped generate $195 billion in customs duties for the 2025 fiscal year, the CBO estimated. That’s up from $77 billion the prior year.
US consumer sentiment was little changed in early October as Americans expect scant improvement in the job market or inflation. The preliminary October sentiment index edged down to 55 from 55.1 in September, according to the University of Michigan. While the latest figure was the lowest in five months, it was firmer than the median projection in a Bloomberg survey of economists. Consumers expect prices to rise at an annual rate of 4.6% over the next year, compared with 4.7% a month earlier, according to the data released Friday. They saw costs rising at an annual rate of 3.7% over the next five to 10 years, unchanged from September. “Pocketbook issues like high prices and weakening job prospects remain at the forefront of consumers’ minds,” Joanne Hsu, director of the survey, said in a statement. “At this time, consumers do not expect meaningful improvement in these factors.” The absence of official data releases because of the government shutdown has reduced visibility into an economy characterized by resilient consumer spending. Still, private-sector economic indicators and surveys indicate the labor market remains soft, while manufacturing and services activity struggle for momentum. About 63% of respondents said they expect unemployment to rise in the next year, down a touch from the prior month but nearly twice as high as last year. More than two-thirds see inflation exceeding their income growth in the coming year, the report showed. Buying conditions for durable goods dropped to the lowest level since 2022 on concerns about tariffs. The survey showed the current conditions gauge rose to 61 this month from 60.4 in September, while the expectations index eased to a five-month low. A gauge of sentiment among Republicans rose to the highest level since Donald Trump’s first presidential term. It also improved among political independents but fell among Democrats. The survey was conducted Sep. 23 to Oct. 6.
Applications for US unemployment benefits rose last week, according to a Goldman Sachs Group Inc. analysis of state-level filings released during the federal government shutdown. Initial claims rose to about 235,000 in the week ended Oct. 4 from the bank’s estimate of roughly 224,000 the prior week, Goldman Sachs economists led by Jan Hatzius said in a note to clients. The bank used the Labor Department’s pre-released seasonal factors to adjust the available raw state-level figures. The Labor Department did not publish its weekly report Thursday due to the government shutdown, but it did release downloadable data for most states. Continuing claims, a proxy for the number of people receiving benefits, ticked up to 1.92 million in the week ended Sept. 27 from the prior week’s estimated 1.91 million, the economists found. Goldman Sachs economists estimated initial claims for Hawaii and Massachusetts, and assumed those applications were in line with the latest published numbers. Here is what Bloomberg Economics had to say: “Bloomberg Economics estimates initial jobless claims were at 233k in the week ended Oct. 4. This relatively low figure suggests layoffs remain low.” — Eliza Winger.
Stocks dropped and bond prices rose as rhetoric on trade between the US and China became heated on Friday. President Trump posted on Truth Social, accusing China of becoming “hostile” due to their export controls. He stated, “I was to meet President Xi in two weeks, at APEC, in South Korea, but now there seems to be no reason to do so.” He threatened “a massive increase of tariffs on Chinese products” being imported into the United States. This was prompted by news Friday that China slapped new port fees on US ships and started an antitrust investigation into Qualcomm Inc., the latest in a string of tit-for-tat moves as Presidents Xi Jinping and Donald Trump jockey for leverage before a key meeting to discuss trade and other issues. Beijing’s Transport Ministry announced Friday that it will begin collecting fees on vessels owned by US companies and individuals, as well as those built in America, starting Oct. 14. The move coincides with the date Washington plans to impose new charges on large Chinese ships calling at US ports. Separately, China’s market regulator opened an anti-monopoly investigation into Qualcomm over its acquisition of Israel’s Autotalks Ltd. Shares of the US tech giant were little changed at 9:46 a.m. in New York. The measures add to Beijing’s move this week to tighten export controls on rare earths and other critical materials, as well as its ongoing halt on US soybean purchases, escalating pressure on American farming communities that largely voted for Trump in 2024. Beijing’s unexpected volley followed a flurry of steps by the Trump administration targeting the world’s No. 2 economy. Besides the planned ship levies, officials in Washington have reportedly in recent days proposed barring Chinese airlines from flying over Russia on flights to and from the US, and expanded sanctions to further prevent the likes of Huawei Technologies Co. accessing restricted US goods.
Taken together, the latest moves suggest both sides are lining up bargaining chips ahead of a leaders’ meeting this month on the sidelines of the Asia-Pacific Economic Cooperation summit in South Korea. Meanwhile, a truce in a tariff fight that at one point saw US levies surge to as high as 145% is set to expire Nov. 10, unless extended. “This hardball approach is somewhat risky and will complicate talks with the US, even if it ultimately pays off,” Julian Evans-Pritchard, head of China economics at Capital Economics, wrote in a report. While the timing of the curbs “may be opportunistic, we suspect the new controls are mostly motivated by medium-term geo-strategic goals,” he added, characterizing the move as an attempt by Beijing to hold back foreign competitors in areas where the Asian giant wants to retain a leading role. The tariff saga and negotiations continues, as always stay tuned!
Interest Rate Insight and the Fed
Federal Reserve officials showed a willingness to lower interest rates further this year, but many expressed caution driven by concerns over inflation at their policy gathering last month. “Most judged that it likely would be appropriate to ease policy further over the remainder of this year,” according to minutes of the Federal Open Market Committee’s Sept. 16-17 meeting. The record of the meeting also showed “a majority of participants emphasized upside risks to their outlooks for inflation.” Officials at that gathering voted 11-1 to lower interest by a quarter percentage point to a range of 4% to 4.25%, the first such cut this year. One official, the newly-sworn-in Stephen Miran, favored a half-point reduction and voted against the decision. New projections released following the meeting showed officials expected two additional quarter-point cuts by year’s end, according to their median estimate. But they also pointed to division on the committee, as seven of the 19 participants projected no additional cuts in 2025. The minutes showed that a small number of officials were reluctant to support the rate cut. “A few participants stated there was merit in keeping the federal funds rate unchanged at this meeting or that they could have supported such a decision,” the minutes said. While policymakers noted that risks to the labor market had risen, many also felt a rapid drop in employment was unlikely. “Participants generally assessed that recent readings of these indicators did not show a sharp deterioration in labor market conditions,’ the minutes said.
Since the September meeting, Fed governors including Vice Chairs Philip Jefferson and Michelle Bowman have raised concerns about the strength of the labor market as a reason to lower interest rates. Miran has argued that a lower than understood neutral rate of interest means the Fed needs to cut rates quickly. President Donald Trump and several administration officials have also pointed to recent data in their mounting calls for the Fed to lower rates immediately. Federal funds futures contracts suggest investors see rate cuts likely in October and December. Officials continued to say they would weigh risks both to inflation and employment as they considered their next move “Participants stressed the importance of taking a balanced approach in promoting the committee’s employment and inflation goals,” the minutes said. The Fed held its meeting two weeks before the beginning of the ongoing government shutdown, which has frozen the release of key economic data.
Prolonged funding pressures in US money markets, just as bank reserves held at the Federal Reserve are dwindling, suggest the central bank may be getting closer to ending the unwinding of its massive portfolio of securities. Overnight funding markets, where banks and asset managers borrow and lend to each other on a day-to-day basis, have been volatile since the beginning of September. Ultra-short-term interest rates, which have been steadily rising as the Treasury is rebuilding its cash pile, remain stubbornly elevated even after a benign quarter end. As a result, the gap between the Secured Overnight Financing Rate and the effective fed funds rate — the central bank’s benchmark rate — is near its widest level since the end of 2024. Meanwhile, bank reserves fell just below $3 trillion, the lowest level since January, according to the latest data. Fed Chair Jerome Powell said last month bank reserve balances are still “abundant” and have yet to reach the minimum level needed to cushion against market disruptions, though he acknowledged they’re getting closer. Fed Governor Christopher Waller earlier estimated that level — known as ample — at $2.7 trillion. With market metrics showing that funding costs are getting tighter, market observers say that level is fast approaching. “While this development was not unexpected, it suggests that reserves are close to becoming merely ample – rather than abundant,” John Velis, a foreign-exchange and macro strategist at BNY, wrote in a note to clients on Tuesday. “The current challenge facing the Fed is assessing where that change in the demand curve for liquidity will occur.” Fed officials have since 2022 been winding down the central bank’s balance sheet — a process known as quantitative tightening — reversing trillions of dollars of asset purchases designed to stimulate the economy after the pandemic struck. Earlier this year, the Fed slowed the pace by reducing the amount of bond holdings it lets roll off every month.
A flurry of Treasury bill issuance after the government raised the debt ceiling earlier this summer has lured away cash, dragging yields higher across a range of instruments. Interest-rate benchmarks tied to overnight repurchase agreements collateralized by US Treasuries are hovering around the Fed’s interest on reserve balances rate, known as IORB, an indication that higher funding costs are here to stay. Dallas Fed President Lorie Logan has said using the spread between IORB and the Tri-Party General Collateral Rate (TGCR), a risk-free overnight rate that underpins more than 1 trillion in daily transactions, might provide a cleaner read on liquidity conditions and the state of bank reserves. In a speech in August, Logan noted that US repo rates were on average about 8 basis points below interest on reserves in recent months, which suggested officials still had room to reduce reserves. However, for the past week TGCR has set above IORB. It fell to 4.13% as of Oct. 6 from 4.16%, New York Fed data show. IORB stood at 4.15%. Central bank officials appear divided on how much the Fed should tighten its balance sheet. Fed Vice Chair for Supervision Michelle Bowman said at the end of September the Fed should seek to achieve the smallest balance sheet possible, with reserve balances at a level closer to scarce than ample. That’s in contrast with Powell, Logan and others who have suggested that the runoff should end once reserves are near ample, likely by the end of this year. “We should hear more about the possibility that reserves are indeed transitioning from abundant to merely ample,” Velis said.
Impactful International News
French markets got off to an excited start this week as both stocks and bonds tumbled on Monday after the sudden resignation of Prime Minister Sebastien Lecornu, with investors speculating that fresh elections are inevitable to solve the political crisis. French bonds fell, with 10-year yields jumping as much as 11 basis points to 3.61%. The premium that investors are demanding to hold French debt over Germany is now the highest level this year. The CAC 40 Index sank 2%, with banks taking the biggest hit. The euro weakened 0.7% against the dollar. The resignation is the latest step in a long-running political crisis in France, which has prompted the downfall of a number of prime ministers and roiled the nation’s assets. The key problem successive premiers have faced is having to pass a budget through a fractured parliament that includes unpopular spending cuts and tax increases to rein in the largest deficit in the euro area. The resignation “plunges France towards the unknown,” said Luigi Buttiglione, founder of advisory firm LB Macro. “The French economy is poised to suffer from the unavoidable further loss of confidence by the business sector, thus impacting activity in the whole EU give the weight of France.” The resignation came after President Emmanuel Macron named a broadly unchanged cabinet Sunday, which sparked an immediate backlash from opposition parties as well as his own supporters. The country’s credit rating has twice been downgraded since Lecornu took office. Moody’s holds an Aa3 rating on France with a stable outlook, and is scheduled to next update on Oct. 24. S&P has an AA- assessment with a negative outlook ahead of its next review on Nov. 28.
Pro-stimulus lawmaker Sanae Takaichi’s near-certain elevation as Japan’s next prime minister jolted financial markets Monday, with the yen and long-term bonds tumbling even as equities surged to all-time highs. The politician’s surprise victory in a ruling party leadership vote last weekend reduced expectations that Bank of Japan may hike interest rates as soon as this month while raising worries about more debt supply to finance stimulus. “Takaichi’s election as leader of Japan’s ruling party is being interpreted as a clear positive for risk assets,” said Dilin Wu, a strategist at Pepperstone Group Ltd. “Investors are actively balancing the potential upside of stimulus against bond market risk, quickly adjusting positions to navigate possible currency swings.” The yen lost 1.8% against the dollar to pass 150 and sank to an all-time low against the euro. Longer-term bonds fell on concern Takaichi’s policies will require more government spending and fan inflation. The 40-year yield surged as much as 17 basis points to 3.55% and the yield on the benchmark 10-year bond rose to 1.68%, the highest since 2008. Yields on Japan’s two-year notes moved in the opposite direction to those on long-term bonds, dropping 4 basis points to 0.9%. Traders rushed to recalibrate the chances of a BOJ rate hike at its Oct. 29-30 meeting. Overnight index swaps priced in about a 24% chance of an increase, down from 60% before the Liberal Democratic Party’s leadership vote. “Sanae Takaichi’s surprise victory in the LDP leadership election marks an important turning point for Japan’s policy and market outlook,” Societe Generale strategists wrote in a note, pushing back the likely timing of the BOJ’s next rate hike to December from October. “Her remarks do not point to an immediate or large-scale fiscal expansion, but her policy orientation and past record suggest a willingness to use fiscal levers actively to support growth if needed,” they wrote.
German factory orders unexpectedly fell for a fourth month, another setback to the government as it struggles to lift Europe’s biggest economy out of two years of contraction. Demand declined 0.8% in August, with large orders preventing an even sharper drop, the statistics office said Tuesday. Economists polled by Bloomberg had predicted a 1.2% gain, with just one analyst anticipating a decrease. Germany’s export-driven industry is adapting to a difficult environment, with US President Donald Trump racking up tariffs and China increasingly acting as a competitor on global markets. At the end of July, the European Union agreed a tariff deal with the US that set levies for most products shipped to the country at 15%. Trump’s plans had caused firms to front-load activity, leading to volatile growth numbers in the first half of 2025. The drop in August was driven by sluggish demand from abroad, while there was a boost in domestic orders, the Economy Ministry said in a statement. “The rebound in domestic demand indicates that the industrial sector is bottoming out, while the recently weak foreign demand continues to dampen demand,” it said. “The renewed high share of large domestic orders for capital goods points to increasing orders in the defense sector and defense-related goods.”
The Canadian economy added more jobs than expected but the unemployment rate held steady as more people entered the workforce. Employment rose by 60,400 positions in September, driven by increases in full-time work. The jobless rate was unchanged at 7.1%, Statistics Canada data showed Friday. The job gains surpassed even the most optimistic projection in a Bloomberg survey of economists — the median forecast was for 5,000 jobs to be created. Gains were led by public employment. The manufacturing sector added 27,800 employees, and agriculture, health care and other services all added workers. The employment rate — the proportion of the working-age population that’s employed — rose 0.1 percentage points to 60.6% in September. The surprisingly strong job gains suggest Canada’s job market is showing some resilience to tariff disputes with the US. The jump in factory employment, while not driven by autos, shows the sector may be benefiting from some exporters being exempt from levies through the US-Mexico-Canada Agreement. The loonie surged to the day’s high against the US dollar after the release of Canada’s September jobs data, gaining some 0.3% to C$1.3980 as of 8:35 a.m. in Ottawa. Canadian debt fell at the front-end of the curve, with the two-year yield rising about two basis points to 2.49%. The report also reduced expectations for a cut at the Bank of Canada’s next rate decision on Oct. 29, with traders putting the odds at about 25% compared with 50% previously. Still, the better-than-expected gains only partially offset the major job losses in July and August. Canada’s economy has shed a net 45,900 jobs over the last three months, the weakest quarter since the pandemic. Total hours worked fell 0.2% in September. The labor force rose by 72,300.We hope all of our clients are safe and well. Our planning and client service team has been engaging in a client outreach program to check to see how all our clients are doing – so please do not be surprised when you receive an email and/or phone call from a member of our outstanding team.
Company Events
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