What we're covering here
• The Federal Reserve is set to announce its latest decision on interest rates at 2 p.m. ET, with most economists anticipating another quarter-point cut to support the waning job market.
• Central bank officials are forced to make their monetary policy determinations this month without any federal economic data due to the government shutdown.
• If the data blackout persists for much longer — obscuring how the world’s largest economy is faring — central bankers may need to hold off on any rate cuts until there’s better clarity.
Sen. Warren raises concerns about Fed not having sufficient data due to government shutdown
Democratic Sen. Elizabeth Warren is concerned that the lack of government data being produced due to the ongoing shutdown is making it harder for the Federal Reserve to make the best decisions about where interest rates should be.
“I think that it is right for the Fed to cut rates, but getting that done accurately, knowing how much they should cut, depends on data,” Warren told reporters on Wednesday, ahead of the Fed’s decision. “The whole point of an independent Fed is that they look through the numbers, you know, they’re boring nerds, and then they make their best decision for the economy.”
She went on to blame President Donald Trump for the shutdown, which, among other issues, has paused the release of government-produced economic data.
“And I don’t say it’s bad for Democrats. I say it is bad for everyone, Democrats, Republicans, independents, everyone. This is a really bad move,” Warren, the ranking member of the Senate Banking Committee, said.
Stocks rise ahead of tech earnings as Nvidia hits $5 trillion valuation
Enthusiasm about AI has lifted the market higher this year. The rally increasingly relies on the fate of a few enormous tech companies.
Wall Street this afternoon will be focused on quarterly earnings reports from Alphabet (GOOG), Microsoft (MSFT) and Meta (META). Investors will turn to results from Apple (AAPL) and Amazon (AMZN) on Thursday.
Those five companies —- in addition to Nvidia (NVDA) and Tesla (TSLA) — have accounted for roughly 46% of the S&P 500’s gains this year, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
Nvidia shares are up 54% this year, leading the group higher. Alphabet shares are up roughly 43%.
“They’ve gone up so much,” said Peter Ricchiuti, senior professor of finance at Tulane University. “They’re very ripe for disappointment.”
US stocks were higher Wednesday afternoon as traders awaited the Federal Reserve’s decision on interest rates. The Dow was up 132 points, or 0.28%. The S&P 500 rose 0.17%, and the tech-heavy Nasdaq Composite rose 0.53%.
“This week’s big tech earnings may be the most important in recent memory since many investors are skeptical about the stock market’s rally over the past two months,” David Laut, CEO at KERUX Financial, said in an email.
Supreme Court won't be hearing arguments this year on whether Trump can fire Fed Governor Lisa Cook
Heading into last month’s monetary policy meeting, it was unclear if Federal Reserve Governor Lisa Cook would be able to cast her vote after President Donald Trump attempted to fire her.
Right before the two-day meeting kicked off, an appeals court ruled Trump didn’t have the authority to fire her, paving the way for her to participate in the meeting.
Then earlier this month, the Supreme Court announced it would hear arguments in the case that will largely determine the degree to which the central bank can function independently from politicians. The nation’s highest court won’t begin to hear arguments until January, giving Cook the ability to continue working at the Fed, at a minimum, until then.
Cook is set to deliver an address at the Brookings Institution next week on the economic outlook, her first public speech since she was accused of mortgage fraud by the Trump administration, which has not provided any evidence of wrongdoing.
Here's what one Fed official had to say about the lack of key economic data
Almost every Federal Reserve official will tell you that they follow a data-dependent approach for making interest rate decisions. That means if recent job reports show the labor market has weakened, officials may be more inclined to cut. Or if it shows inflation has been accelerating, they may opt to hike.
But because of the ongoing government shutdown, there’s a huge void of data that could otherwise have helped officials make a more optimal interest rate decision at this month’s monetary policy meeting.
Fed Governor Christopher Waller said in a speech earlier this month there’s a “conflict right now between data showing solid growth in economic activity and data showing a softening labor market.” Because of that conflict, he said officials need to be more careful when deciding their next interest rate move.
He added:
Waller also said he’s been relying more on the anecdotal data he gathers from interviewing businesses to help him determine the current state of the economy.
A landmark Supreme Court case on tariffs kicks off next week. The ruling could change the Fed's calculus
The fate of the majority of President Donald Trump’s tariffs hinges on a Supreme Court case that kicks off next week.
The justices will consider whether Trump had the legal authority to impose tariffs across virtually all goods the US imports by citing emergency powers.
No matter the outcome of that case, Trump will continue to have plenty of levers to impose tariffs. But if the court rules against him, it would undo many tariffs currently in place and also prevent Trump from being able to impose new ones as quickly as he has.
If that happens, it may be a big relief for Fed officials because it could give them more of an ability to continue cutting rates to help juice the labor market without giving as much consideration to whether it’ll simultaneously fuel more inflation.
Who’s who on Trump's short list for the next Fed chair
The Trump administration’s search for who will lead the Federal Reserve next year is well underway, and there are five people on the short list to become the most powerful figure in the US economy.
Few people wield as much influence over financial markets and the global economy as the head of the US central bank. A few words from the Fed chair can move markets and shift billions of dollars.
It’s a role so consequential that President Donald Trump has even mused about taking it for himself.
Trump is expected to name his pick for a replacement as soon as December. That would be the earliest any president has announced a Fed chair nominee before the incumbent steps down.
Treasury Secretary Scott Bessent, who is leading the administration’s search, said Monday he has narrowed it down to five people. Their backgrounds include the White House, the Fed, and the private sector.
Read more here.
The economic data the Fed actually has at this meeting
Much of the focus going in to this month’s monetary policy meeting has been on the data Federal Reserve officials won’t have on hand as a result of the ongoing government shutdown. But there still is a good deal of recent data central bankers do have. Here’s what they’re likely looking at more closely in light of missing government data:
- Consumer Price Index: Unlike most government data, the September CPI was published last week because of a requirement to make Social Security cost-of-living adjustments. It showed annual inflation moved up to 3% from 2.9% in August.
- ADP: The payroll processor reported US private-sector businesses lost 32,000 jobs in September.
- Consumer sentiment: The University of Michigan’s monthly index reported that Americans remain concerned about the higher cost of living and weakening labor market.
Dow crosses 48,000 points for first time ever
The party on Wall Street continues.
The Dow rose as much as 334 points, or 0.7%, Wednesday morning, briefly pushing the blue-chip index above the 48,000 mark for the first time in history.
The broader S&P 500 and tech-heavy Nasdaq Composite also hit intraday record highs.
“The stock market is getting everything it wants, from a Federal Reserve rate cut to a thawing of US-China trade tensions to continued strength in earnings,” Paul Stanley, chief investment officer at Granite Bay Wealth Management, said in an email.
Stocks continue to climb higher, buoyed by better-than-expected corporate earnings.
“So far, we’ve seen very good reports by and large from corporate America this earnings season,” said Zachary Hill, head of portfolio management at Horizon Investments. “For the companies that have yet to report, that does raise the bar.”
Traders are also pricing in a Federal Reserve rate cut this afternoon and in December, helping provide fuel for the rally. A signal that the Fed is hesitant about cutting in December could send a jolt through markets.
The Dow has gained almost 13% this year. Meanwhile, the broader S&P 500 has gained 17% and the tech-heavy Nasdaq has soared 24%.
Here’s what lower rates means for housing
Last week, mortgage rates fell to their lowest level in more than a year as traders anticipated the Federal Reserve would cut rates at their policy meeting this week.
The 30-year fixed rate mortgage averaged 6.19% last week, according to Freddie Mac, down from over 7% at the start of this year.
There are signs that lower mortgage rates are already drawing more buyers into the market.
September sales of existing homes rose by the fastest pace in seven months, according to the National Association of Realtors.
At the same time, home prices are now rising more slowly than overall inflation. August marked the weakest year-over-year increase in more than two years, according to the S&P CoreLogic Case-Shiller national index released Tuesday.
But even with an interest rate cut in October, mortgage rates may not fall much further. Wells Fargo expects them to hover between 6.2% and 6.4% over the next two years.
Payroll provider ADP is helping fill the gap left by the BLS
US private-sector hiring has picked up speed in recent weeks, according to new data from ADP released Tuesday.
The payroll provider estimated that non-public sector businesses added an average of 14,250 jobs per week for the four-week period that ended on October 11. That pace suggests a monthly gain of about 57,000 jobs, which would represent a rebound from ADP’s September estimate that showed a loss of 32,000 private-sector jobs.
Tuesday’s data is part of a newly launched report from ADP that aims to provide a higher-frequency snapshot of US labor market activity. The new data series comes as the US government shutdown has created a void of critical economic data – notably the monthly jobs report.
“High-frequency data can tell us whether a dip in hiring is just a bump in the road or something more. It can help us spot labor market weakness — or approaching recoveries,” ADP noted in the report. “It can lead us to a deeper understanding of business cycles. In times of economic stress and recovery, weekly data can be invaluable for identifying turning points.”
ADP said it plans to release this higher-frequency data three Tuesdays per month and will still produce its monthly National Employment Report.
While ADP’s private-sector employment estimates do not always align with the official Bureau of Labor Statistics jobs report, they’re monitored as they can provide an indication of the trajectory of hiring patterns.
Could rate cuts fuel an asset bubble?
Another interest rate cut looks like a slam dunk today — but some economists worry the Federal Reserve’s rate cuts could backfire by fueling a bubble in markets.
Joe Brusuelas, chief economist at RSM, told CNN in a phone interview that he has “real reservations” about Fed policy potentially “adding to an asset bubble by stroking more leverage and risk-taking.”
Rate cuts typically incentivize investors to take on more risk.
Brusuelas cautions that the bursting of a bubble would cause “collateral damage” across the real economy because of how exposed high-income Americans are to the stock market.
“That’s a recipe for a termination of the business cycle,” Brusuelas said. In other words, the bursting of a bubble could cause a recession.
Asked in September by CNN about rate cuts fueling a bubble, Fed Chair Jerome Powell said officials monitor financial stability “very, very carefully.” Powell said financial stability risks are a “mixed picture,” but that structure vulnerabilities are “not elevated right now.”
Some observers have warned of a bubble in artificial intelligence, pointing to stretched valuations and a recent pattern of circular financing. Chipmaker and AI darling Nvidia on Wednesday reached a valuation of $5 trillion.
Although certain elements of investor behavior may “rhyme with previous bubbles,” Goldman Sachs says valuations are not at excessive levels consistent with prior bubbles.
“There is still a risk that we end in a bubble but, on balance, we don’t think we are in one yet,” Goldman Sachs strategists wrote in a report earlier this month.
The Fed's $6.6 trillion question
The biggest debate among Federal Reserve officials this week isn’t over interest rates.
For the past three years, the central bank has gradually reduced the size of its massive portfolio in a careful effort to reverse the stimulus it introduced into the economy during the Great Recession and the Covid-19 pandemic when it gobbled up trillions of mortgage-backed securities and government debt.
After peaking at nearly $9 trillion in mid-2022, the Fed’s balance sheet is currently at around $6.6 trillion. It’s a tool that works in the background while the Fed’s key interest rate does much of the heavy lifting to achieve its macroeconomic goals.
Officials are returning their balance sheet to a more normal state in case they ever need to expand it again for future crises. But it’s a delicate process because it can disrupt money markets. On Wednesday, policymakers are poised to signal the end of the balance sheet’s runoff, also commonly referred to as “quantitative tightening,” or QT.
“I expect the Fed to announce the schedule of termination of QT as the Fed reacts to a liquidity crunch slowly developing,” Joe Brusuelas, chief economist at RSM US, told CNN’s Matt Egan.
It was the topic of an October 14 speech Fed Chair Jerome Powell delivered at an economics conference, in which he discussed the technical intricacies of the balance sheet. Powell said the end of the runoff could happen sometime “in the coming months,” though some investors say it could happen in the coming weeks.
It’s a delicate process and could inadvertently drain liquidity from the financial system, which would cause overnight borrowing rates to surge, similar to what happened in 2019 when a confluence of untimely decisions — including from the Fed — thrust money markets into a crisis.
Stocks open higher
US stocks opened higher Wednesday morning ahead of the Federal Reserve’s decision on interest rates.
The Dow was up 160 points, or 0.34%. The broader S&P 500 gained 0.32%. The tech-heavy Nasdaq Composite rose 0.69%.
Nvidia (NVDA) rose 5.2%, surpassing $5 trillion in market value for the first time ever. The AI giant had just crossed $4 trillion in market value in July.
The action-packed part of the session will likely come in the last two hours, when traders are digesting the Fed’s statement on its policy decision as well as Fed Chair Jerome Powell’s remarks at a press conference.
It’s a busy week for markets. While Wall Street is attuned to the Fed, there is also focus on a slate of major corporate earnings reports, as well as progress in global trade talks while President Donald Trump is on a diplomatic tour in Asia.
The S&P 500 is trading roughly 1.3% away from the milestone of crossing 7,000 points.
“October is on track for an extremely strong month in stocks,” David Laut, CEO at KERUX Financial, said in an email. “The stock market is already up over 17% so far this year, and we think there is limited upside ahead between now and the end of the year.”
Here's what Wall Street expects from the Fed
Wall Street widely expects the Federal Reserve to lower its benchmark interest rate by a quarter point.
Traders will be glued to Federal Reserve Chair Jerome Powell’s remarks at a press conference this afternoon.
Here’s what investors and economists are saying:
- “It’s fair to characterize Wednesday’s Federal Reserve meeting as unusual, since the Fed is data dependent and there has been very little economic data to parse thanks to the government shutdown.” — David Laut, CEO at KERUX Financial.
- “We expect Chair Powell to mention the lack of official data due to the government shutdown.” — Marc Giannoni, chief US economist at Barclays. “We think he will say that the outlook for employment and inflation does not appear to have changed much since the September meeting.”
- “With Amazon’s announcement of big job cuts, and similar announcements, I think it actually provides some cover for the Fed as to why they’re cutting rates.” — Melissa Brown, head of investment decision research at SimCorp.
- “It will be difficult for [the Fed] to ignore the US stock market, whose rally has become a sign of too-loose financial conditions.” — Thierry Wizman, global FX and rates strategist at Macquarie Group. “This should help temper Powell’s enthusiasm for more rate cuts.”
- “[The Fed] will signal its intention to be meeting-to-meeting.” — Larry Hatheway, head of research at Franklin Templeton Institute. “In other words, every meeting will be evaluated on the merits of the incoming data, whatever the form, shape and quality of that data that they receive, so that there’s no such thing as a predetermined path.”
- “The potential for tariffs to fuel persistent inflation, alongside shifts in labor supply and concerns about data reliability, suggests a cautious and gradual easing path.” — Seema Shah, chief global strategist at Principal Asset Management.
- “We expect one dovish dissent from Governor [Stephen] Miran.” — David Seif, chief economist for developed markets at Nomura. “Powell’s press conference will likely reiterate some easing bias, but we expect him to push back modestly on a December cut as definite, insisting that policy decisions will be made meeting-by-meeting.”
The Fed is flying mostly blind
It’s a foregone conclusion that the Federal Reserve will cut by a quarter point today, the second cut of the second Trump administration. The market is pricing in a nearly 100% chance of a cut.
This will lower Fed rates to three-year lows.
What’s unusual is that for the first time since the Fed’s rate-setting committee was established in the 1930s, officials are making this decision without the monthly jobs report. The government shutdown has also delayed key reports on consumer spending and inflation.
This is a big problem for a Fed that loves to say it is data dependent. Sure, there are alternative private reports — but they are no substitute for the official government data. So the Fed is flying mostly blind. What could go wrong?
This is the first ever Fed meeting without the government's employment data
For the first time since the Federal Reserve’s rate-setting committee was established in the 1930s, officials will be making a rate decision without a month’s worth of key employment data produced by the government.
The ongoing federal government shutdown, which has become the second-longest on record, has suspended most of the economic data that the Fed relies on to set interest rates. That includes the highly anticipated jobs report for September, which was scheduled for October 3.
During the longest-ever shutdown from December 2018 to January 2019, the Bureau of Labor Statistics remained funded and released data as scheduled. The last time the monthly jobs report was delayed was in 2013, when that year’s shutdown on October 1-16 delayed the September jobs report until October 22. The Fed met on October 29-30 that year.
Similarly, the December 1995-January 1996 shutdown delayed the release of the December 1995 jobs report, but it was released on January 19, ahead of the Fed’s meeting that month on the 30th and the 31st.
But it’s unclear whether this week’s decision — without a jobs report — is truly unprecedented because of how central bankers may have set interest rates in the decades after the Fed was established in 1913.
“I doubt that the Fed was closely following macro data such as the employment report before the 1950s,” Laurence Ball, an economics professor and monetary policy scholar at Johns Hopkins University, wrote in an email.
In the 1970s Congress charged the Fed with maintaining full employment.
Stocks set to open higher ahead of Fed rate decision
Stock futures were higher Wednesday morning as traders awaited the Federal Reserve’s decision on interest rates, set to be announced at 2 p.m. ET.
The Fed is widely expected to lower its benchmark interest rate by a quarter-point, marking the second rate cut of the year. While the Fed is cutting rates in response to a weakening labor market, lower borrowing costs and less restrictive monetary policy can also be fuel for a stock market rally.
Dow futures were up 99 points, or 0.2%. S&P 500 futures gained 0.25%. Nasdaq 100 futures rose 0.4%.
Stocks are coming off a day in the green. After closing above 6,800 for the first time ever on Monday, the S&P 500 extended its gains into record high territory on Tuesday and briefly surpassed 6,900 points.
Stocks have climbed higher on strong corporate earnings, enthusiasm about artificial intelligence and optimism about Fed rate cuts. Investors have also welcomed progress on trade talks between Washington and Beijing after a flare up in tensions earlier this month.
The 10-year Treasury yield ticked up and traded at 3.99%. The US dollar slightly strengthened against other major currencies.
