All Eyes on the Fed

Rate Cuts

As we kick off the final quarter of 2025, the markets are focused on the Fed. Two weeks ago, the Federal Reserve announced a quarter-point rate cut to the federal funds rate. This cut was widely expected and the markets took it in stride. This follows the modern trend of rate policy transparency that began under Ben Bernanke, whereby the Federal Open Market Commission (FOMC), which controls the fed funds rate, issues guidance on expected rate moves. The Fed's transparency efforts are intended to reduce interest rate uncertainty and, in turn, market volatility. This concept reflects a theme you will hear often in this newsletter: markets loathe uncertainty. 

Based on FOMC guidance, most Fed observers expect two more rate cuts by the end of the year. But, last week's economic data casts doubt on that prediction. GDP growth for the second quarter came in above estimates, and jobless claims unexpectedly fell. This indicates that both the economy and the job market remain strong, which could put a halt to rate cuts. This is because the Fed has a dual mandate set by Congress: full employment and stable prices, i.e. low inflation. If GDP growth is strong and unemployment is low, the Fed has little justification to lower rates.

Political Pressure and Fed Independence

Although the Fed was created by an Act of Congress, it has historically operated independently. That independence is being challenged by the Trump administration, which has been pressing for more aggressive rate cuts in order to spur the economy. Allowing monetary policy to be controlled by politicians has some obvious pitfalls. For starters, politicians would be tempted to use the levers of the central bank to juice the economy for political gain, at the peril of longer-term economic stability. This fact would, in turn, create uncertainty for interest rate policy, which is the single most important factor for investment analysis. And, as I said above…. markets loathe uncertainty.

We'll be carefully watching what happens at the Fed, regardless of what happens politically, to make sure our portfolios are prepared for shifting monetary policy. In the short term, we have been rolling maturing short-term T-Bills into longer-term bonds for increased yield and the potential for capital appreciation if rates decline further.

Also in this 4Q25 Newsletter: The Future of Social Security

Social Security is one of the top concerns in retirement planning, and with the trust fund projected to run dry by 2034, many wonder what the future holds. If Congress doesn’t act, current taxes would still cover about 80% of scheduled benefits, meaning across-the-board cuts of roughly 20%. Lawmakers could respond with options like raising the retirement age, trimming benefits, or hiking taxes to keep the system solvent. In this article, we unpack the challenges, the likely outcomes, and how financial planning tools can help you prepare with confidence.