Regulatory & Compliance | 11.12.25

The Fed in the Fog: Understanding Today’s Macro Uncertainty

by: Rich Blake

It's probably a good thing there's no regularly scheduled Federal Reserve meeting set for November. It might well have been an exercise in futility. A month-and-a-half-long U.S. federal government shutdown has deprived the central bank of much of the data it uses to measure the economy.

"What do you do if you're driving in the fog?" Fed Chair Jerome Powell remarked rhetorically to reporters in October. "You slow down."

As for the lasting impact of hamstrung, indecisive monetary policies on portfolios, financial advisors must face up to the possibility that a much-anticipated, full-on rate reduction cycle simply might not be in the cards. In the end, particularly for baby boomers nearing retirement, this might not be a bad thing.

Private Data Rises to Fore

Ahead of the December Fed meeting, policymakers will be relying on any metrics available to them — assuredly, it’s an enormous albeit alternative trove — while the bond market will have to suffice as a kind of macroeconomic North Star. Investors will keep a keen eye on 10-year Treasuries. On Friday, Nov. 7, those yields endured their steepest decline in about a month.

Plus, there's a CME futures market connected with forward-looking Fed policy projections. At last check, the CME's data showed the market was pricing in a 63% chance the Fed cuts rates by 0.25% when it convenes on Dec. 9-10.

Much of the chatter coming out of the Oct. 28-29 Fed meeting was that a rate cut in December, while still likely, was hardly a foregone conclusion. Chair Powell said as much. And when he did, major stock indexes started to slide. His bucket of monetary policy ice water did not, however, send treasury yields higher. In fact, as mentioned, the 10-year wound up falling after a private sector recruiting firm, Challenger, Gray & Christmas Inc., released data showing significant October job losses. ADP’s monthly employment data, given scant attention in usual times, has also suddenly enjoyed more relevance.

Concerns about a softer labor market, on the one hand, support the argument for more rate cuts, providing a tailwind for risk assets such as equities. But, on the other hand, as Chicago Fed President Austan Goolsbee recently said, the lack of official inflation data left him “even more uneasy” about any plans to continue to slash borrowing costs.

Murky Path Ahead

Since the government shutdown started on Oct. 1, statistical agencies haven’t published economic data. Fed officials have gone without critical measures, including labor, consumer spending and inflation measures. Instead, policymakers have had to rely on an "array of private data and state administrative records, as well as regional bank surveys and research, to cobble together a picture of the U.S. economy," as Barron's explained.

On Monday, Nov. 11, the U.S. Senate passed a funding package that could set the stage for the end of the shutdown. The legislation was set to move onward to the House. It's possible that the worst-case scenario — the shutdown disrupting Thanksgiving travel — can be averted.

Investors, per Reuters, are eager to clear a "data fog" that has resulted from the government not being able to release crucial economic reports on which everyone in the financial industry, the Fed included, relies.

It turns out that September's employment numbers could be released fairly quickly once the government reopens, said Nancy Vanden Houten, an economist at Oxford Economics. That's because those releases were likely close to being ready for publication before the shutdown started. The pace of releases after that is at best anybody’s guess. "I think the government agencies will make every attempt to make up all the lost data," Vanden Houten told Reuters. "But we can't rule out that maybe some will just have to be skipped or that we get more than one month of an indicator at a time."

No doubt the Fed has plenty of data — mountains of it gathered and scrubbed using AI — and the central bank could actually wind up uncovering evidence of inflation that otherwise might have gone undetected.

Brent Meyer, assistant vice president and head of the Atlanta Fed's Economic Survey Research Center, has said the central bank has a "pretty solid read on what is happening in aggregate, even if we don't have the official statistics."  

The Fed polls roughly 5,600 company executives quarterly about expected company performance, the economic outlook and other issues. "This isn't doing things by anecdote,” Meyer told Reuters. “We are capturing a large swath of what’s happening."

Bottom Line for Advisors

Let's say the Fed’s Plan B informational approach leads the central bank to conclude that the labor market is softening and inflation appears in check. We'll stipulate that the Fed is indeed ready to cut. Equities should go up if that's the case, right?

Not necessarily. One of the big stories alongside the government shutdown has been the growing fears surrounding the potential for an AI bubble.

Additionally, and even if AI turns out not to be a bubble (which carries its own negative implications) an environment marked by reduced interest rates will have massive implications for investors who are retired or nearing retirement.

One high-net-worth advisor had this to say about the outlook for interest rates: "After years of bull markets many investors who should be turning toward bonds are still over-invested in stocks. With Fed cuts as well as dollar concerns, there are fewer attractive fixed-income options if/when those equity-heavy investors do sell."

So the question for advisors becomes more about positioning portfolios — reducing stock allocations — at a time when yields potentially are going down, and with inflation still stubbornly eroding savings. But then that’s just like the conundrum of the Fed Chair — stuck between a rock and hard place.