Week of September 22, 2025

Key Points for the Week

• The S&P 500 made additional new all-time highs last week, but for the first time since November 2021, so did the Russell 2000 Index of small cap stocks.
• Stock prices were supported by the Fed cutting interest rates for the first time since 2024.
• The next looming policy risk getting attention is a potential government shutdown, but shutdowns historically rarely have had an impact on the stock market.
• The Fed cut rates despite rising inflation.

• There was little consensus among Fed participants on the rate outlook.

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  Current Trends & News is a weekly financial recap curated by SPC Financial®'s team of wealth management and tax-integrated advisors. We monitor and explore the intricacies of the financial world and share insights into market developments.

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Economic Update

Last week, investors rejoiced after the Federal Reserve Open Market Committee (FOMC) lowered the federal funds rate by a quarter percentage point. Major U.S. stock indexes set new record highs.

FOMC projections for the future suggested more rate cuts could be ahead.

"The updated ‘dot plot' forecasts three cuts in 2025, up from two in June, but the outlook reveals deep uncertainty among policymakers. The median forecast masks a razor-thin 10-9 split among the 19 participants, what economists call a ‘soft median' that suggests little consensus about the path ahead."

Nicole Goodkind, Barron's

During a press conference, Federal Reserve (Fed) Chair Jerome Powell explained that the rate cut was a response to extraordinary economic circumstances.

"I think you could think of this, in a way, as a risk management cut...it is such an unusual situation. Ordinarily when the labor market is weak, inflation is low; and when the labor market is strong, that's when you got to be careful about inflation. So, we have a situation where we have two-sided risk, and that means there's no risk-free path. And so, it's quite a difficult situation for policymakers.”

Jerome Powell, Federal Reserve Chair

U.S. Treasury markets were less confident than stock markets following the Fed rate cut. The yield on the benchmark 10-year Treasury note dipped below 4 percent before moving higher again, reported Martin Baccardax of Barron's. Rates moved higher because bond investors are concerned that inflation might accelerate. Rising inflation reduces the current value of interest payments, as well as the value of invested principal.

Prospective home buyers won't be happy about the bond market's response. The 10-year Treasury is the benchmark for mortgage rates.

“Rising 10-year yields are also an issue for the housing market, which remains stuck in low gear amid record-high prices, slow new construction and mortgage rates that keep homeowners reluctant to sell and refinance."

Martin Baccardax, Barron's

Last week, major U.S. stock indexes finished higher. Treasuries were mixed, with yields on shorter maturities moving lower and yields on longer maturities moving higher.

This Week in the Markets

The Federal Reserve (“Fed”) cut interest rates 0.25%-points at their September meeting last week, taking their policy rate to the 4.0–4.25% range. This comes after a long nine-month pause but the move was widely expected, especially given recent data showing a rapidly cooling labor market.

The widely anticipated cut was accompanied by more new highs for the S&P 500 Index. We also saw a new all-time high for the Russell 2000 Index of small cap stocks, something that hasn't happened since November 2021.

While this market continues to be led by technology-oriented large cap stocks, we think that small cap stocks making a new all-time high provide some nice confirmation that the stock market rally is broadening out. Yes, large caps have been leading, and that leadership has been concentrated, but broad participation in market gains matters, and we've been seeing that not only in small caps, but also international stocks this year.

There is a possibility of a government shutdown at the end of the month, but historically that's rarely been a problem for stock markets. Congress has until the end of the month to fund the government, or we could be looking at the first shutdown since late 2018/early 2019. The odds of a shutdown are slowly increasing each day, but we have been able to avoid some shutdowns the past few years, specifically in the fall of 2023 when one was widely expected.

With all the negative headlines, does Congress really want to delay sending checks to veterans? We don't know, but this is something we will watch very closely over the next week.

The good news is history says shutdowns have little to no effect on stocks. In fact, the last shutdown, in 2018–2019, was a record 34 days and stocks gained more than 10%! Most shutdowns last only a few days, so just enough to get in the headlines and then it is over just as quickly.

Below is a table that shows how stocks have been up just a little on average during the previous 22 shutdowns (which are usually short), but a year later have been higher 19 times and up an average of nearly 13%.

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The Federal Reserve

The Federal Reserve cut interest rates 0.25%-points at their September meeting last week, taking their policy rate to the 4.0–4.25% range. While investors did not expect an extra-large 0.5%-point cut (fed funds futures markets priced that at a less than a 10% probability before the meeting), it was notable that Fed Chair Powell was quite dismissive of the possibility, saying there was no widespread support for anything more than a 0.25%-point cut. This in a nutshell captured the dynamics of how the Fed is thinking about this rate cut.

The Fed has two mandates—maximum employment and stable inflation—and things are going in the wrong direction on both sides. Payroll growth data is flashing a big red warning sign, but inflation is also rising and running closer to 3%, well above the Fed's target of 2%. So, there are risks to both sides of their mandate and the big question for the Fed has been, which one would they focus on?

Powell called the cut a “risk management” move, and given they chose to cut rates, they're clearly prioritizing the risk to the labor market over inflation. In other words, the Fed is more worried about the labor market deteriorating more rapidly than inflation spiraling out of control. In fact, they believe inflation risk has eased since early summer. Current elevated inflation numbers are due to tariffs but that may be transitory.

The Fed also updated their quarterly projections of future GDP growth, inflation, the unemployment rate, and their expectations for the policy rate (the “dot plot”). For 2025, the median Fed member projected two more cuts (0.25%-points each), which would take the policy rate to the 3.5–3.75% range. Relative to their June economic projections:

• The core inflation (ex. food and energy) estimate for 2025 stayed unchanged at 3.1% (actual core inflation is currently at 2.9%).
• The unemployment rate estimate for 2025 stayed unchanged at 4.5% (currently at 4.3%).
• The real GDP growth estimate for 2025 was revised up from 1.6% to 1.8%.

Cutting rates by a total of 0.75%-points (including the September cut) over three months while revising their estimate of growth higher and expecting inflation to remain well above their target is a clear sign that the Fed is more worried about risks to the labor market. They expect to cut rates one more time in 2026 (another 0.25%-points), even as core inflation is estimated to remain hot (they raised the 2026 inflation projection from 2.4% to 2.6%). By itself, that should also be a big tailwind for equity markets.

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What you see above is the “median” expectation for rates in the projections. The problem is that the 19 members of the Fed are all swimming in different directions. For 2025:

• Six members expect no more rate cuts this year.
• One member expects to raise rates again by 0.25%-points.

So, 7 of 19 members, a fairly significant portion of the committee, think nothing more should be done with policy rates this year.

On the other hand, 2 members think rates will be cut one more time this year, and another 9 believe two more cuts are forthcoming in 2025, which is why the median estimate was for two more cuts. That's 11 of 19 members who think more action will be needed to protect the labor market and probably believe inflation risks have eased (we imagine Powell's in this camp).

Interestingly, one member expects a whopping 1.5%-points of rate cuts this year, i.e. 5 more cuts of 0.25%-points each. The dispersion across members is even more stark when it came to 2026 expectations, with the expected policy rate ranging from a low of 2.6% to 3.9% (we're around 4.1% now after yesterday's cut).

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The lack of clear consensus within the committee is why Powell wasn't ready to commit to continued policy rate easing over the next several months. Instead, he implied that the September cut was an insurance cut (to protect the labor market) and said they're going to consider any further changes meeting by meeting based on interim data.

As noted above, there was an outlier dot when it came to 2025 rate expectations, with one member expecting rates to be cut several more times this year, taking the policy rate to 2.9%. Here's the dot plot from the Fed's own materials (the annotation added):

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It isn't hard to guess who this was—newly appointed Fed Governor, Stephen Miran. Miran was the Chair of the Council of Economic Advisors until Monday and passed Senate confirmation for the Fed Board seat just in time to make it to the Fed meeting that started Tuesday. Yet, this is only a temporary appointment until January. (President Trump could re-appoint him, but he'll have to go through Senate confirmation again, and Miran hasn't resigned from his CEA position (he's on leave)). Safe to say, Miran is clearly the administration's voice on the Fed Committee, and made his presence felt immediately.

It also gives us a clue as to what may be coming in 2026, which is what matters now. The President gets to appoint Chair Powell's successor (Powell's Chairmanship ends in May). There may be two other vacancies that Trump could fill next year. Combined with the two other governors that were appointed by President Trump in his first term, there'll likely be enough people at the Fed to push policy rates in the direction favored by the administration, i.e. lower, much lower. Even in the dot plot, you can see that five members already expect the policy rate to go below 3.0% by the end of 2026.

This is why markets are probably pricing a few more rate cuts in 2026 than the median Fed dot. Markets expect the policy rate to fall below 3% by 2026, versus the dot plot median of 3.4%.

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What's interesting is what comes after, which is a big disconnect in the opposite direction, with markets more hawkish than the Fed. The median Fed member expects rates to move closer to 3% in 2027 and stay there in 2028 and beyond, presumably as they expect inflation to hit their target and the unemployment rate to stay low. In contrast, the market expects the Fed to start raising rates again—likely because inflation becomes a problem—though markets probably believe the Fed will act on it only as President Trump's term in office nears its end in 2028.

Markets may have this completely wrong but it's not a stretch to imagine that inflation starts to become a bigger problem next year (it already is elevated) if the Fed pulls rates all the way down to 3%. That's going to boost cyclical areas of the market, including housing. If Fed rate cuts pull mortgage rates down to 5%, expect a flurry of refinancings and even homeowners tapping into home equity (which there is plenty of because of rising home values over the last several years). There's "fiscal stimulus” for households not in place too:

• A tax deduction on tips
• A tax deduction for seniors—$6,000 for an individual, and $12,000 for spouses filing jointly
• A much larger SALT (state and local tax, including property tax) deduction, with the limit rising from $10,000 to $40,000, which will benefit upper middle-income households who itemize their taxes

All of this is retroactive for 2025, which means several million households will receive larger than normal tax refunds. Just take the SALT deduction. Increasing the limit by $30,000 means taxes for a household in the 24% tax bracket will fall by $7,200 (if they have sufficient state and local tax deductions).

Now some of this will be offset by lower income for savers who were used to earning a 4%+ yield on their savings/money market accounts. But even there, we may see a movement out of these accounts into riskier assets (like longer-term bonds) to boost expected returns. That's a positive for risky assets.

All this is likely to fuel spending and boost demand for risk assets generally, but this obviously raises the question, what about inflation? Well, it may remain elevated as well, running closer to 3% rather than the Fed's target of 2%. But in the eyes of the administration, and the Fed, that may be a small price to pay to keep growth going, and that may be what we see as 2026 kicks off: a period of inflationary growth, but that is also a strong environment for profits, and bullish for stocks.

Economic Recovery

Economists find the alphabet to be a handy tool for describing economic recoveries. For instance, there are V-shaped recoveries and U-shaped recoveries. The primary difference between the two is the length of the recession. When the economy recovers, enters another recession and recovers again, the recovery is shaped like a W. The dreaded L-shaped recovery occurs when an economy takes years to return to previous levels of growth.

Since the COVID-19 recession ended, the economic recovery in the United States has been K-shaped. One group of Americans has recovered from recession and is doing relatively well. The other has yet to recover fully from the recession. The prongs of the letter “K” represents the split in their economic experiences.

“One way to think about the post-rate-hike economy is as a bifurcation between haves and have-nots as rising underemployment, sticky inflation and higher interest rates hit lower-income households more. Small businesses have also suffered disproportionately from high interest rates and tariffs. High-income households are basically keeping the economy afloat.”

Edward Harrison, Bloomberg

Last week, the FICO Credit Score Report for the second quarter of 2025 reflected the K-shaped economy. The number of people in the highest and lowest credit ranges both increased, and there were 11 percent fewer people in the mid-range. In addition, the report found:

• U.S. credit scores fell. The average credit score was two points lower than it was in the previous year, largely because of rising credit card use and a surge in missed payments as student loan delinquency reporting resumed.
• Young people were struggling. The group with the biggest decline in credit scores was 18- to 29-year-olds. This group typically has more student loan debt than older populations. Loan delinquencies were up.
• Auto loans were paid first. When Americans must decide what to pay first, they typically choose car loans. Next up is the mortgage, followed by credit cards and student loans.

The K-shaped economy reflects uneven economic progress since the pandemic.

A Reminder About Scams

Scams usually start with a phone call, email, text, or another form of communication. The person typically claims to be from an agency or organization you know – or one that sounds like it might benefit you, such as the National Sweepstakes Bureau or a lottery.

The person may know your name and address. They may give you their official title or an identification number. No matter how official they seem, you can be confident it is a scam if the person contacting you:

• Indicates there is a problem with your benefits.
• Asks you to pay to receive a prize.
• Suggests that paying will increase the chance of winning.
• Requests financial information, such as a bank account or credit card number.
• Pressures you to act immediately.
• Tells you to pay using a specific method, such as a gift card or cryptocurrency.

If this happens, remember that the Social Security Administration, the Internal Revenue Service, Medicare, and your bank do not call, email, or text to ask for money or personal information. They do not demand that you pay immediately, and they do not accept payment by gift card, prepaid debit card, cryptocurrency, or another untraceable form of money transfer.

When you suspect a scam:

• Hang up or close the message. Do not respond in any way.
• Remain calm.
• Think back over the call. Write down any personal information you may have inadvertently shared.
• Report the scam. Contact the Federal Trade Commission at ReportFraud.ftc.gov. You may also want to report the incident to your state's attorney general or your local consumer protection agency.
• Share your knowledge. Talk with family, friends, and neighbors about your experience so they know what to look out for.

When you receive a digital message, no matter how official it seems, do not click on any links. Do not give or confirm any personal information, including your name, birth date, phone number, address, email address, place of birth, driver's license, passport, or Social Security numbers, bank or other account numbers, and PIN numbers.

Being skeptical can keep you safe. Remove yourself from the situation. Do not share information. If you feel anxious and need to confirm that it was a scam, contact the organization using a method provided on their official website.

Did you Know? This Week in History

September 24, 1948: Honda Motor Company is Incorporated

On September 24, 1948, motorcycle builder Soichiro Honda incorporated the Honda Motor Company in Hamamatsu, Japan. In the 1960s, the company achieved worldwide fame for its motorcycles (in particular, its C100 Super Cub, which became the world's best-selling vehicle); in the 1970s, it achieved worldwide fame for its affordable, fuel-efficient cars. Today, in large part because of its continued emphasis on affordability, efficiency and eco-friendliness (its internal motto is “Blue skies for our children”), the company is doing better than most.

Starting in the 1960s, the company produced a few small cars and sporty racers, but it wasn't until it introduced the Civic in 1973 that it really entered the auto market. The car's CVCC engine burned less fuel and could pass American emissions tests without a catalytic converter; as a result, the car was a hit with American drivers frustrated by rising gasoline costs. The slightly larger, plusher 1976 Accord won even more fans, and in 1989 it became the most popular car in the United States.

Soichiro Honda was inducted into the Automotive Hall of Fame in 1989. He died two years later at the age of 84.

Weekly Focus

"The big money is not in the buying or selling, but in the waiting."

Charlie Munger, Vice Chairman of Berkshire Hathaway

"The depressing thing about tennis is no matter how good I get, I will never be as good as a wall."

Mitch Hedberg, Comedian