The US government shutdown has entered its 24th day and as of this writing it does not appear there are any discernable efforts taking place to address the impasse within the US congress. Despite the government shutdown, and the dearth of government related economic data, market participants did receive an update on the Consumer Price Index (CPI) this morning. Linked to the administration’s need to calculate the cost-of-living adjustments for the annual social security increase in 2026, employees at the Bureau of Labor Statistics, which calculate the CPI data, were deemed essential and the delayed report was released this morning. The headline CPI and core CPI data releases were both bond market friendly, with the headline coming in a 0.3% month-over-month and the core at 0.2% month-over- month, both 0.1% lower than the consensus forecast expectations. The annualized numbers for CPI inflation remain comfortably above the Federal Reserve’s 2.0% inflation target, with both headline and core CPI at 3.0% annualized through September 2025. Notably, compared to the prior year, annualized headline CPI is 0.6% higher (2.4% in September 2024 versus 3.0% in September 2025) and annualized core CPI is 0.3% lower (3.3% in September 2024 versus 3.0% in September 2025). Additionally, within the details of the CPI report, market participants picked up on some tariff impact, with the apparel category increasing by 0.7% on the month, compared to August’s increase of 0.5%, and the April decrease of -0.2%. The possibility of more elevated tariff inflation passing through in coming months is a risk the Chandler team will continue to monitor closely.
On a week-over-week basis, Treasury yields experienced low levels of volatility, however the 2s10s Treasury curve was moderately flatter, with a spread of 51 basis points as of the time of this writing compared to 55 basis points at the market close last Friday. A flatter 2s10s curve is inconsistent with the Chandler core view, as we believe the current ‘low hire, low fire’ employment backdrop in addition to the anticipated fiscal stimulus in the first half of 2026, should provide for a constructive economic backdrop for the US economy. It is very unlikely the advance estimate of third quarter GDP will be released per the typical schedule at the end of October due to the government shutdown, however the widely followed Atlanta Fed GDP Nowcast estimate is a robust 3.9% as of October 17th for the 3rd quarter of 2025. Weekly jobless claims data is not being released due to the government shut down, but because much of the data is compiled at the state level, the Bloomberg economics staff forecasted jobless claims of 227k as of October 18th, very much in line with recent readings and consistent with the low unemployment rate of 4.3%.
The Federal Open Market Committee (FOMC) meets next Wednesday, October 29th, and the market is pricing in almost a 100% probability the Fed Fund rate will be reduced by 25 basis points to a range of 3.75% to 4.00%. The Chandler team agrees with the market probabilities and believes further measured adjustments to the Fed Funds rate are likely over a six-month forecast horizon. The longer the US government remains shut down, the higher the probability, in our view, the FOMC will follow through with another cut to the target rate in December. Provided the unemployment rate remains at a level consistent with historical ‘full employment’ readings, the FOMC is likely to remain measured at their pace to adjust the target range closer to a neutral setting.
Next week: (U.S. government data may be delayed by shutdown): Durable goods, S&P Case Shiller Home Price Index, Consumer Confidence, Jobless Claims, 3Q GDP, Personal Income, Personal Spending, PCE Inflation, Employment Cost Index, and Chicago PMI.
© 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.