Market Update 10/29/25: Fed Delivers Rate Cut as Economy Shows Resilience

As was widely anticipated, the Fed cut interest rates by 0.25% at today’s Federal Open Market Committee (FOMC) meeting, bringing the target for the Fed funds rate to 3.75% to 4.00%.

Key Takeaways​​

• We believe our portfolios are well-positioned to navigate the current environment and continue to meet our clients’ long-term financial goals.
• The decision to continue its rate-cutting cycle reflects the Fed’s prioritization of its employment mandate over its inflation mandate.
• While the Fed aims to shift towards a more neutral interest rate policy over time, it may approach this goal more gradually and consider pausing at its next meeting in December.
• The economy appears more resilient than previously anticipated, and lower interest rates may be supportive of increased business investment.

​​​​​​​Investment Implications

Historically, a Fed rate-cutting cycle has been positive for both stocks and bonds; however, we are cautious about stretched stock market valuations and concentrations. Bond yields remain relatively attractive and are expected to be supportive of bond total returns moving forward. We have high conviction in alternative asset classes, which we believe may offer upside return potential and lower correlation to the broad stock and bond markets.

Fed Prioritizing Employment

The Fed’s decision to cut interest rates comes at an interesting time, with a more resilient economy than previously anticipated and elevated inflation resulting from tariffs. Indeed, the statement noted that “economic activity has been expanding at a moderate pace” and that inflation “has moved up since earlier in the year and remains somewhat elevated.” Though the Fed noted that “uncertainty around the economic outlook remains elevated.”

The decision to continue its interest rate-cutting cycle reflects the Fed’s prioritization of its employment mandate over its inflation mandate. The Fed has been clear in communicating that it believes the inflationary impact of tariffs will be short-lived, while paying greater attention to the ongoing softness in the labor market. At his subsequent press conference, Fed Chair Powell noted that, stripping out the impact of tariffs, data indicate non-tariff inflation is closer to the Fed’s 2% target, and measures of longer-term inflation expectations remain contained. On the other hand, Powell emphasized that job gains had slowed significantly relative to earlier in the year.

Near-Term Policy Unclear…Though Lower Rates Eventually Likely

In continuing its rate-cutting cycle, the Fed is acknowledging that it believes the current interest rate policy remains restrictive and wants to move towards a more neutral rate. At his press conference, Powell indicated that even after today’s rate cut, Fed policy remains moderately restrictive. However, future interest rate policy is by no means assured: two Fed officials dissented to today’s decision, with one advocating a larger 0.50% interest rate cut and another believing no cut was warranted. Moreover, Powell made a point to highlight the strongly differing views among Committee members regarding future appropriate monetary policy, specifically for December’s meeting.

Ahead of today’s announcement, the market broadly expected another 0.25% interest rate cut in December. Powell poured some cold water on that outlook, stating another rate cut in December is “not a forgone conclusion…far from it” and that policy “is not on a preset course.” While the Fed wants to move towards a more neutral rate over time, it may be more measured in achieving that goal and may pause at its next meeting in December.

Economic Insight​​​​​

The economy appears more resilient than previously anticipated, and underlying business fundamentals are broadly robust. We anticipate stronger-than-expected economic growth with a backdrop of lower interest rates supporting business investment. We are already seeing an uptick in capital markets activity, with trade policy uncertainty largely behind us. While some uncertainty remains regarding China, businesses now have a clearer understanding of the “rules of the road” with respect to tariff costs across the majority of their trading partners, and can plan and invest accordingly.

Business investment is likely to be further supported by a lower cost of capital, on the back of lower interest rates, which will also help improve business credit quality. These positive dynamics may be further compounded by investments in artificial intelligence (AI), which are leading to productivity enhancements. A potential offset, however, is the implications that AI may have on the labor market, which we are closely monitoring, as it may, in turn, impact consumer spending.

We continue to monitor developments closely and believe our portfolios are well-positioned to navigate the current environment effectively.

Mission Wealth clients, if you have any questions, please don’t hesitate to contact your Wealth Advisor.

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