Key Takeaways
- Pre-market Futures Add to Yesterday's All-Time Closing Highs
- The Outlook for an Accommodative Fed Is Set, Even with Higher Inflation on the Horizon
- Struggles for the Labor Market, Looking Ahead
Friday, September 19, 2025
It’s the last Friday of trading for the summer of 2025, a week and a half from the end of calendar Q3, the major economic reports of the week have already been released and the Fed has made its monetary policy decision. Feels like a good time to put our feet up for a minute — especially with pre-market indexes riding higher off all-time closing highs yesterday.
That said, it’s the third Friday of September, so it’s “Quadruple Witching” — the simultaneous expiration of stock options, stock index options, index futures and single stock futures — which means we may see more unexpected trading activity that we would on an otherwise relatively quiet trading day. Depending on where trading firms had placed themselves ahead of time will determine much of what transpires today.
The Dow is currently +75 points at this hour, the S&P 500 is +13 and the Nasdaq +40. The small-cap Russell 2000 is +3 points currently; it led all major indexes Thursday to its first all-time closing high in four years. Bond yields continue to creep slowly higher: +4.13% on the 10-year and +3.58% on the 2-year.
Reflections on Fed Rate Cuts
As expected on Wednesday afternoon, the Federal Open Market Committee (FOMC) reduced the Fed funds rate by 25 basis points (bps) to a new range of 4.00-4.25%. It’s the first cut of 2025, but not likely the last. The general dot-plot for the Fed through the end of the calendar year are for two more 25 bps cuts, which would bring interest rates to 3.50-3.75%, where we haven’t been in a very long time.
(Three years ago, when the Fed was busy raising interest rates to fight inflation, we moved from 3.00-3.25% in September of 2022 to 3.75-4.00% at the next meeting in early November.)
We know that the main concern for the Fed is now the weakening jobs market and not inflation, as the gradual introduction of tariff policy into U.S. trade has begun to push inflation rates higher. Both the August CPI Inflation Rate and July’s core PCE level were both +2.9% — notably higher than the Fed’s preferred +2.0% rate of inflation.
Jobs have shrunk drastically, according to the U.S. Bureau of Labor Statistics (BLS), averaging just +36K new jobs filled on average over the past four months. Compare than with the previous four months of +123K and the prior 4-week average +219K. Currently, we don’t appear to be covering the amount of monthly retirees with just +36K jobs added per month.
The Unemployment Rate, at +4.3%, does not appear troubling at first glance — even as it is the highest level we’ve seen since October of 2021. However, immigration crackdowns are likely having an effect on companies whose businesses rely on a workforce that does not appear in the BLS, such as migrant farm workers. Also consider that those new college graduates who have yet to find a job are not even counted among potential employees. This +4.3% figure — and even the U-6 “real unemployment” level of +8.1% — may be a tad light.
Complicating matters with the new FOMC is its latest member, President Trump’s chief economist, Stephen Miran. This uber-dovish new fed governor not only voted for a 50-bps cut in the September meeting, but for 50-bps cuts in the final two meetings of 2025, as well. This would bring interest rates to 2.75-3.00%.
A Quick Forecast of Much Lower Interest Rates
We’re not going to see Miran lead the Fed in bringing interest rates down, but his close proximity to the president is a good indication that an aggressive rate cut regime is likely in the future. Fed Chair Jerome Powell’s term ends in May of 2026, so we expect him — and his insistence to work toward a +2% inflation rate — to be relegated to the dustbin of history.
Thus, when we combine a lower trajectory of Fed funds rates with consequences relevant to the Big Beautiful Bill passed through Congress this year, we can count where we foresee economic shifts: lower borrowing costs would encourage spending, which would enhance economic growth. Normally, this would also lead to job creation, although with factors related to immigration employment and technology (AI) replacement, this is less certain.
What we can say is that there would be a lot fewer tools in place to keep inflation from increasing. Perhaps a new Fed would move its optimal level on inflation to 3% or 3.5%? This would likely keep expenditures higher — perhaps much higher — even if we assume current tariff measures only amount to a one-off in price increases.
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Image: Bigstock
A Late Summer Reflection on Growth, Inflation & Jobs
Key Takeaways
Friday, September 19, 2025
It’s the last Friday of trading for the summer of 2025, a week and a half from the end of calendar Q3, the major economic reports of the week have already been released and the Fed has made its monetary policy decision. Feels like a good time to put our feet up for a minute — especially with pre-market indexes riding higher off all-time closing highs yesterday.
That said, it’s the third Friday of September, so it’s “Quadruple Witching” — the simultaneous expiration of stock options, stock index options, index futures and single stock futures — which means we may see more unexpected trading activity that we would on an otherwise relatively quiet trading day. Depending on where trading firms had placed themselves ahead of time will determine much of what transpires today.
The Dow is currently +75 points at this hour, the S&P 500 is +13 and the Nasdaq +40. The small-cap Russell 2000 is +3 points currently; it led all major indexes Thursday to its first all-time closing high in four years. Bond yields continue to creep slowly higher: +4.13% on the 10-year and +3.58% on the 2-year.
Reflections on Fed Rate Cuts
As expected on Wednesday afternoon, the Federal Open Market Committee (FOMC) reduced the Fed funds rate by 25 basis points (bps) to a new range of 4.00-4.25%. It’s the first cut of 2025, but not likely the last. The general dot-plot for the Fed through the end of the calendar year are for two more 25 bps cuts, which would bring interest rates to 3.50-3.75%, where we haven’t been in a very long time.
(Three years ago, when the Fed was busy raising interest rates to fight inflation, we moved from 3.00-3.25% in September of 2022 to 3.75-4.00% at the next meeting in early November.)
We know that the main concern for the Fed is now the weakening jobs market and not inflation, as the gradual introduction of tariff policy into U.S. trade has begun to push inflation rates higher. Both the August CPI Inflation Rate and July’s core PCE level were both +2.9% — notably higher than the Fed’s preferred +2.0% rate of inflation.
Jobs have shrunk drastically, according to the U.S. Bureau of Labor Statistics (BLS), averaging just +36K new jobs filled on average over the past four months. Compare than with the previous four months of +123K and the prior 4-week average +219K. Currently, we don’t appear to be covering the amount of monthly retirees with just +36K jobs added per month.
The Unemployment Rate, at +4.3%, does not appear troubling at first glance — even as it is the highest level we’ve seen since October of 2021. However, immigration crackdowns are likely having an effect on companies whose businesses rely on a workforce that does not appear in the BLS, such as migrant farm workers. Also consider that those new college graduates who have yet to find a job are not even counted among potential employees. This +4.3% figure — and even the U-6 “real unemployment” level of +8.1% — may be a tad light.
Complicating matters with the new FOMC is its latest member, President Trump’s chief economist, Stephen Miran. This uber-dovish new fed governor not only voted for a 50-bps cut in the September meeting, but for 50-bps cuts in the final two meetings of 2025, as well. This would bring interest rates to 2.75-3.00%.
A Quick Forecast of Much Lower Interest Rates
We’re not going to see Miran lead the Fed in bringing interest rates down, but his close proximity to the president is a good indication that an aggressive rate cut regime is likely in the future. Fed Chair Jerome Powell’s term ends in May of 2026, so we expect him — and his insistence to work toward a +2% inflation rate — to be relegated to the dustbin of history.
Thus, when we combine a lower trajectory of Fed funds rates with consequences relevant to the Big Beautiful Bill passed through Congress this year, we can count where we foresee economic shifts: lower borrowing costs would encourage spending, which would enhance economic growth. Normally, this would also lead to job creation, although with factors related to immigration employment and technology (AI) replacement, this is less certain.
What we can say is that there would be a lot fewer tools in place to keep inflation from increasing. Perhaps a new Fed would move its optimal level on inflation to 3% or 3.5%? This would likely keep expenditures higher — perhaps much higher — even if we assume current tariff measures only amount to a one-off in price increases.
Questions or comments about this article and/or author? Click here>>