The key events shaping the w/c 13 October 2025: US-China trade posturing, US government shutdown continues, Fed speeches: Fed Chair Powell, Fed Beige Book
Recap from last week: Balancing the Fed Policy Mandate
With the ongoing US government shutdown creating a data vacuum, our focus shifted to central bank communications this week. An overarching theme across these communications was the challenge of balancing policy mandates amid conflicting views on data and elevated risk. The Fed minutes revealed the FOMC undertaking a balancing act with its 25bps cut as rising downside risks to employment shifted the Fed’s balance of risks. The minutes and speeches this week reinforced the complex, two-sided risk environment, as well as a lack of consensus on the progress of inflation and on the cause of the current labor market weakening. This balancing theme was reflected elsewhere; the ECB minutes suggested rates were in a “good place” for balancing current risks, while the RBNZ opted for an aggressive 50bp cut to pre-emptively mitigate downside risk from cautious spending. However, the fragile tariff truce between the US and China, while they negotiate around lowering the US ‘Liberation Day’ tariffs, was upended on Friday, shifting risk sentiment.
The FOMC minutes reflected broad, if not unanimous, agreement to cut the FFR at the last meeting in response to the ‘shift in the balance of risks’. One committee member dissented in favour of a larger cut. Overall, the minutes suggest that the Committee was taking a risk management approach to mitigate the rising downside risks to employment and to avoid a rise in unemployment, before those risks become a reality.
“Most” participants observed that it was appropriate to move the target range for the federal funds rate toward a more neutral setting because they judged that downside risks to employment had increased over the intermeeting period and that upside risks to inflation had either diminished or not increased. Source: FOMC Minutes 16-17 Sep 2025
Beyond the immediate decision, the minutes reflect the Fed navigating a more complex, two-sided risk to its dual mandate. Committee members held differing views across both sides of the dual mandate: on the progress of inflation and on the reason for labor market weakness. This division was evident in the nuanced language used throughout the minutes. Even the unanimous decision to cut rates was caveated: “a few participants” saw “merit” in keeping the rate unchanged, and could have supported such a decision. On inflation, some members felt that inflation, excluding tariffs, was close to target. Others emphasized that progress on inflation had stalled, even excluding those tariffs. Finally, there was a range of views on the current drivers of the weakening labor market conditions – whether the weakness in payroll growth was driven by a mix of faltering labor demand and/or emerging structural supply factors.
The minutes surrounding forward guidance were also nuanced. The tension remained between being “data dependent” and “not on a preset path,” while acknowledging that “more easing is likely to be appropriate.” While most judged that it would likely be appropriate to ease policy further over the remainder of this year, Participants stressed the importance of a “balanced approach” given the two-sided risks: easing too much risked unanchored inflation expectations, while keeping rates too high risked unnecessary increases in unemployment. Despite the absence of official government data due to the shutdown, markets are still pricing in two further 25bps cuts this year.
A range of views was also borne out across Fed speeches last week. Of note was Governor Barr’s speech, where he focused on the complexity of balancing the dual mandate, saying that “the most difficult circumstances for making monetary policy decisions are when both mandate variables are at risk”. He acknowledged the rising risk to jobs at the last meeting. However, this speech emphasised inflation risks – noting that the Fed’s price stability goal “faces significant risks”. The speech by New York Fed President Williams, on the other hand, erred more on the side of a weakening labor market in supporting further cuts this year. In an interview later in the week, Fed Governor Waller advocated for a more cautious approach, highlighting the disconnect between slowing payrolls and recent strengthening in growth, noting that “something’s got to give”. But he also said that “the labor market is weak – and that’s the punchline for policy”. He emphasized that while he favoured cutting rates, “you’re not going to do it aggressively and fast, in case you make a big mistake on which way that things go”. He sees the pace of quarter-point cuts at the next few meetings as sufficient.
Other global central banks also emphasised this balancing approach. The ECB minutes for the latest meeting (hold) showed a consensus that rates were currently in a “good place”, and “close to or at the end of the monetary policy cycle”. Minutes showed the inflation outlook as stable, but vulnerable, and domestic growth resilient but also vulnerable in the near-term. While a further rate cut “would better protect the inflation target… under a range of adverse scenarios” (downside growth risk), the materialization of upside inflation risks “would instead warrant maintaining the current level.”
However, the RBNZ cut rates by more than expected by 50bps, and guidance indicated that the Committee was “open to further reductions”. The decision for a 50bp cut was seen as mitigating the risks of persistent, overly cautious household and business spending, while there is still spare capacity in the economy, and despite inflation remaining at the upper end of the 1-3% target band.
Outlook for the week ahead: US-China trade posturing, US government shutdown continues, Fed speeches: Fed Chair Powell, Fed Beige Book
The trade negotiations between the US and China were again a source of headline risk late last week. At the time of writing, there has been some effort to de-escalate; however, there is disagreement on the terms of the tariff truce while negotiations are ongoing. Both US President Trump and President Xi plan to meet in a few weeks at the APEC summit in South Korea. Importantly, the immediate market reaction on Friday serves as a sharp reminder: a swift de-escalation of the renewed trade tensions is important to prevent this spike in risk from hardening back into more sustained and elevated uncertainty around tariffs for business and households.
The coming week has many angles. Headline risk around US-China trade posturing ahead of planned talks, progress on the US government shutdown, Fed speeches prior to the blackout period before the next FOMC meeting on the 28-29 Oct, and limited data. The BLS also announced that the CPI report for Sep will be released next week on 24 Oct.
Key factors & events to watch this week
US Fed speeches & the Beige Book
This is the final week of speeches ahead of the blackout period next week, before the FOMC meeting on 28-29 Oct. The Fed Beige Book will be released this week ahead of the FOMC meeting – and is likely to gain more scrutiny amid the data vacuum.
- There will be several key Fed speeches this week. Fed Chair Powell will speak on the Economic Outlook and Monetary Policy at the NABE conference (14 Oct). This will be a key speech ahead of the FOMC meeting.
- Fed Governor Waller will speak on the Economic Outlook (16 Oct) – also a key speech ahead of the FOMC meeting.
- There will be a range of other speeches through the week – see the official Fed calendar.
- The Fed Beige Book, covering anecdotes from regional Fed business contacts for the last six weeks. This will be an important input into the next Fed meeting (as usual).
US Fed surveys and private sector data
Given the ongoing US government shutdown, US data will be limited to US regional Fed manufacturing surveys and private sector reports.
- The NY Empire State and Philadelphia Fed Manufacturing surveys for Oct will be released – our first data point for Q4.
- The NAHB Housing Market (home builder sentiment) index for Oct.
- The NFIB business optimism index (Sep)
Global data reports
- UK labor market for the 3 months to Sep. The unemployment rate is expected to stay unchanged at 4.7%.
- The Australian labour market report for Sep. Employment growth is expected to rebound to +20k from -5k in Aug; however, the unemployment rate is expected to increase to 4.3% from 4.2% in Aug.
- The RBA minutes will be released this week.
- Euro area CPI – final for Sep is expected to confirm headline inflation of +2.2% and core inflation of +2.3%.
This week, the US Treasury will auction and settle approx. $651bn in ST Bills, Notes, and Bonds, raising approx. $91bn in new money.
QT this week: Approx $11.3bn in ST Bills and TIPS will mature on the Fed balance sheet and will be reinvested. Approx $0.7bn in TIPS will mature and roll off the Fed balance sheet.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
