The U.S. federal government officially shut down on October 1st after Congress failed to agree on a funding bill. The debate centers on disagreements over spending priorities, including health care subsidies and Medicaid funding. About 750,000 federal employees considered “non-essential” face temporary furloughs until a deal is reached, while “essential” employees continue working without pay. The big question is how long the shutdown might last. For reference, the last government shutdown in December 2018 stretched for 35 days, the longest in U.S. history.
U.S. government data is currently limited by the shutdown, including the closely watched monthly employment report released the first Friday of the month. Other labor market data this week, however, continued to depict a weakening employment backdrop. Job openings came in line with expectations, holding steady at 7.2 million in August, but remain below the number of employed workers at 7.4 million. Opening and layoff rates were unchanged at 4.3% and 1.1% respectively, but the quits rate continued to decline to 1.9% highlighting less confidence in finding better jobs. The ADP report, which tracks private-sector job creation, showed a second straight monthly decline, with job losses of 32,000 in September. Wages held steady for workers who stayed in their jobs, rising 4.5% year-over-year, while pay growth for job changers slowed to 6.6% from 7.1% in August.
Markets reacted with optimism despite the weak labor data and government shutdown news. U.S. stocks managed modest gains to reach record highs while bond markets saw yields fall, as traders’ expectations for rate cuts increased. The 2-year Treasury yield dropped toward 3.55%, while the 10-year yield nudged lower to 4.10%. In the commodity and currency markets, gold continued its strong run, soaring past $3,800 per ounce and briefly hitting new highs amid safe-haven demand. Oil held relatively steady, with only modest fluctuations as investors balanced demand concerns and supply dynamics. Meanwhile, the U.S. dollar softened across major currencies, reflecting pressure from weaker data and hopes for future policy easing.
Looking ahead, Chandler continues to expect additional rate cuts this year and into 2026. We expect economic data could soften through year-end, while inflation will likely remain above the Fed’s 2% target. The newly passed tax measures may offer mild stimulus as we head into 2026 to help support growth. In this setting, Chandler is maintaining a longer duration in portfolios relative to our benchmarks with the expectation that the yield curve will continue to steepen.
Next week: Trade Balance, Consumer Credit, NY Fed 1-Yr Inflation Expectations, MBA Mortgage Applications, FOMC Meeting Minutes, Initial Jobless Claims, Continuing Claims, University of Michigan Sentiment.
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