The Week in Charts (9/16/25)

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The most important charts and themes in markets and investing…

1) Here Come the Rate Cuts

The wait is over.

Tomorrow, the Fed will cut short-term interest rates for the first time since last December, with a 25 bps move down to 4.00-4.25%.

How do I know this?

1) Because the Fed has been telegraphing this move for months, with Powell’s dovish comments at Jackson Hole solidifying their stance.

2) Because bond market investors are now pricing in a 96% probability of a 25 bps rate cut.

And since 2009, the Fed has done exactly what the market was expecting it to do in every single FOMC meeting. If the market was pricing in a hike, they hiked. If the market was pricing in a cut, they cut. If the market was pricing in a hold, they held. Not a single surprise.

With a rate cut already fully priced in, the focus for tomorrow will be on changes to the Fed’s projections for growth, inflation, employment, and interest rates.

The expectation: easy money is coming back, and the Fed will signal that with big changes to their dot plots.

The bond market is now pricing in 3 rate cuts by year-end (Tomorrow, October 29, and December 10) and 3 more cuts in 2026. That would bring the Fed Funds Rate down to 2.88%, which is slightly below the Fed’s “longer-run” target of 3%.

What was the Fed projecting back in June?

A 3.6% Fed Funds Rate at the end of 2026.

So the market is betting that the Fed will be much more dovish than previously expected, with 3 more rate cuts priced in. And if the Fed doesn’t move its dot plots down to reflect this, that would likely be viewed as a hawkish stance.

2) Ignoring Inflation

What message will the Fed be sending when it cuts interest rates tomorrow?

That they believe there’s enough weakness in the labor market and broader economy to justify ignoring rising inflation.

The latest CPI report showed an increase in prices of 2.9% over the last year, the highest rate since January.

And since January 2020, inflation has averaged 4%, more than double the Fed’s 2% target.

When was the last time the Fed cut interest rates with inflation this high (CPI >2.9%)?

October 2008, in the midst of the worst recession/bear market since the Great Depression.

Today, we’re in a markedly different environment with the Unemployment Rate at 4.3% (still well below the historical average is 5.7%) and the S&P 500 at an all-time high (already hitting 25 of them this year).

3) A Cooling Labor Market or Something More?

The 1977 Federal Reserve Reform Act codified the Fed’s “dual mandate,” saying the Fed should conduct monetary policy to promote maximum employment and stable prices.

But how exactly the Fed should weight these two objectives was never defined, and neither were the terms themselves (what exactly constitutes maximum employment and stable prices?).

Which makes monetary policy implementation a highly subjective exercise, with human biases and human error on full display.

At tomorrow’s meeting, the Fed will emphasize the weakness in the labor market and downplay the uptick in inflation, arguing that the risks to “maximum employment” outweigh the risks to “price stability.”

What will they be pointing to?

• For the first time in over 4 years, there are more Unemployed people in the US than there are Job Openings.

• The number of jobs in the US has increased by less than 1% over the past year, the slowest growth rate since March 2021. In the past 50 years, this type of weakness in the jobs market has preceded a Recession and a spike in the Unemployment Rate 100% of the time.

• After a number of downward revisions, US payrolls have increased by an average of just 27k per month over the last 4 months, including -13k for the month of June. This was the first monthly decline in jobs since December 2020, bringing to an end the second longest streak of positive payrolls in US history (53 months).

• The BLS revised down job creation by 911k in the period from April 2024 to March 2025. This was the largest downward revision on record, indicating a much weaker-than-initially reported labor market.

• The Unemployment Rate for 20 to 24 year-olds has moved up to 9.4%, over 5% higher than the overall US Unemployment Rate (4.3%). Excluding the Covid recession, this is the widest gap we’ve seen in more than a decade.

• At 4.3%, the US Unemployment Rate is now 0.9% above the cycle low from April 2023 (3.4%). Historically, a recession has started on average 3 months before that 0.9% move higher in the Unemployment Rate.

Given the clear weakness in the labor market, is cutting interest rates then the right long-term decision for our $30 trillion economy? Does it outweigh the recent uptick in inflation and take precedence over the 4% average inflation we’ve experienced since the start of 2020? And will an interest rate cut alone actually spur employment (there’s little historical evidence to argue that it will), or will it simply add to inflationary pressures going forward?

No one really knows to these questions, which is why I’ve argued congress should remove the Fed’s dual mandate and let the free market determine interest rates. We don’t rely on the Fed to figure out how many bananas supermarkets should sell or how many cars automakers should produce. So why should we entrust them with setting the cost of money, which is akin to central planning?

4) Markets Love Easy Money

Regardless of whether you think the Fed should be cutting rates or not, it’s clear the financial markets are loving the prospect of easy money:

• The S&P 500 crossed above 6,600 last week for the first time, its 6th 100-point milestone of the year.

• The Nasdaq crossed above 22,000 last week for the first time, hitting 5 more record closing highs. The index has doubled over the last 5 years and more than quadrupled over the last 10 years.

• The Dow crossed above 46,000 last week for the first time, joining the S&P 500 and Nasdaq Composite at record highs. This is the 13th straight year in which the Dow has hit at least 1 all-time high, a streak that has never happened before.

• Every major asset class is in the green so far this year, the first time we’ve seen that since 2019. It’s rare to see the Fed ease monetary policy into rising inflation and a melt-up in the equity/credit markets. And investors are absolutely loving it.

5) Spending Like There’s No Tomorrow

While labor market weakness like we’re seeing today has historically been associated with a downturn in the economy, there are two major countervailing factors that can’t be ignored.

The first is the fact that the US government continues to borrow and spend like there’s no tomorrow, running a fiscal deficit of $1.9 trillion in the past year.

The US National Debt has already increased by $1.3 trillion since the Debt Ceiling was raised less than 3 months ago. Next stop: $38 trillion.

While this trajectory is going to cause problems in the long run, it’s stimulative in the short run.

What’s also stimulative is the AI revolution, and the massive infrastructure investments that the biggest companies are undertaking.

Google, Amazon, Meta and Microsoft are projected to spend a record $369 billion on CapEx over the next 12 months, which is more than 4x higher than what they spent five years ago.

6) A Few Interesting Stats…

a) Including dividends, the S&P 500 has quadrupled over the last decade, up 300%.

b) The US collected a record $30 billion in customs duties in August 2025, which was more than 4x higher than the same month in 2024.

c) Gold is on pace for its best year since 1979, up over 40% in 2025.

d) The Interest Expense on US National Debt rose to a record $1.21 trillion in the last 12 months, more than doubling over the past 4 years. The US Government now spends more money on interest than it does on National Defense.

e) Reading and Math scores for high school seniors in America have fallen to their lowest level on record with 68% achieving a “basic” level of performance in Reading and 55% in Math. The % of 12th-graders who were “proficient” also fell to record lows: 35% in Reading and 22% in Math.

f) The US Trade deficit in the first 7 months of 2025 was 31% higher than the first 7 months of 2024.

g) The US Stock Market and Gold have the exact same return over the last 20 years: +658%. But the path in getting there was very different…

And that’s it for this week. Thanks for reading!

Every week I do a video breaking down the most important charts and themes in markets and investing. Subscribe to our YouTube channel HERE for the latest content.

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