Markets had little economic data to digest this week as the U.S. federal government shutdown continued to delay releases. The preliminary October reading for the University of Michigan Consumer Sentiment Index was little changed at 55.0, edging down from 55.1 in September, but exceeding consensus forecasts. Current conditions improved slightly, while future expectations slid, as consumers cited concerns around high prices and weakening job prospects. Inflation expectations remained stable but elevated with the 1-year expectation at 4.6% and the 5-10 year forecast at 3.7%.

Notable in global news this week, Israel and Hamas reached a ceasefire agreement. Hamas is set to return all of the remaining hostages held in Gaza, while Israel will release jailed Palestinians and allow a ramp up of aid to Gaza. Additionally, Japan’s ruling coalition abruptly collapsed, plunging the country into political instability.

The minutes from the September 16-17^th Federal Open Market Committee meeting were released this week, which reflected conditions three weeks ago and before the start of the government shutdown. Minutes reflected a willingness to lower rates further this year while highlighting concerns over sticky inflation. The Summary of Economic Projections indicated two additional quarter-point cuts by year’s end. However, they also pointed to division on the committee. In addition to the dissent by Stephen Miran preferring a half- point cut, seven of the nineteen participants projected one or no cuts in 2025, and a few officials were reluctant to support the consensus quarter-point rate cut to 4.00% – 4.25%. Ultimately, more weight was given in the balance of risks to the maximum employment side of the dual mandate compared to that of price stability as recent labor market data has weakened.

The Fed will likely have fewer key data points to consider when they meet on October 28^th and 29^th, such as the September employment and Consumer Price Index reports. The void in the data creates more uncertainty for policymakers and financial markets. In the absence of data, the Fed may assume no significant shift in the most recent trends. Although market participants are hedging for a broad range of Fed scenarios, market consensus continues to reflect quarter-point cuts in both October and December. We believe the Fed will likely continue with the consensus trajectory of policy normalization but will voice caution until more data becomes available and quality can be verified.

Markets remained relatively calm for most of the week until President Trump threatened further tariffs on China this morning, reigniting trade war fears and causing a flight to quality. Market volatility could intensify once a barrage of data resumes.

Next week:  (U.S. government data may be delayed by shutdown): NFIB Small Business Optimism, MBA Mortgage Applications, Empire Manufacturing, CPI, PPI, Beige Book, Jobless Claims, Retail Sales, NY Fed Services Business Activity, Philadelphia Fed Business Outlook, Business Inventories, NAHB Housing Market Index, Housing Starts, Building Permits, Import Price Index, Export Price Index, Industrial Production, Capacity Utilization, TIC Flows.

© 2025 Chandler Asset Management, Inc. An SEC Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and ADP. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates.