Market Insights Recap — Week of September 22, 2025

Hello, I'm Steve Orr, Chief Investment Officer for Texas Capital's Private Bank. 

Fed floundering, happy markets and higher rates. What do they mean for our portfolios? What should we be thinking about? 

First off, the Fed finally got around to cutting its overnight Fed funds rate. The quarter percentage point cut brings the new range down to 3.75% to 4%. Expect your money market yield to fall into that 3.75% range over the next month or so. Why did the Fed pause for five meetings since its December cut? Well, prior meeting minutes and speeches suggest that the Fed waited 'til the sixth meeting because they believed tariffs were more of an inflation problem than jobs. Each year, the Bureau of Labor Statistics has revised down their monthly job estimates; they're able to get a better estimate because they look at W-2 filings by employers. So the Fed had data showing job creation was not as robust as those monthly estimates. 

We also have plenty of data and research on tariffs and their effects. Short-term turns everybody's toy box over. Long-term, tariffs are deflationary. Folks either buy less or find substitutes. We get that they're transitory price increases, but they're just that. So best we can tell, the weaker job growth over the last three years, together with weaker job numbers in the summer, spurred the Fed to prioritize job stimulus over fighting inflation. But weekly jobless claims are not rising towards recession levels, and recent surveys of businesses and retail sales suggest the economy's in decent and possibly improving shape. The next FOMC meetings are scheduled for October 29 and December 10. The Fed is going to have two rounds of inflation and job numbers to consider. September's job estimates come out Friday, October 3. If the unemployment rate then holds steady at 4.3% and new jobs are north of 50/60,000, I think the Fed's going to have a hard time cutting rates as inflation continues to creep above 3%. The Fed cutting rates is positive for risk assets. So for now, you can stay invested. 

How about those happy markets though? Every major index in the U.S. hit an all-time high last week after the Fed sprayed happy interest rate juice in the trade ticket locker room. The Fed began reporting its rate decisions on the day it made them in 1994, and bespoke research reports that there have been 37 rate cuts since then. Now, eight of those 37 rate cuts occurred within 10 trading days of an S&P 500 all-time high. One year later, stocks were higher in all eight cases, and long-term interest rates, crude oil and the U.S. dollar, have been trending lower over the past year. That creates a favorable backdrop for stock prices, so the bull remains in place. 

What about the Fed cut? Why am I saying higher interest rates? Well cutting rates and Congress pushing more spending through continuing resolutions means more money creation, higher inflation in the coming months. Higher inflation and public debt of $37.5 trillion, it's pressuring taxpayers. And that also means long-term interest rates are going to slowly trend higher. And we're getting a preview of what happens when government debt is greater than the size of the economy in France, Japan and the United Kingdom. Their interest rates have risen nearly a percentage point over the past two years, as worries mount about their ability to pay back their debt. 

So let's wrap it up. The Fed is looking for a risk management reason to cut rates, and they found it in lower job members. We're going to get another jobs reading Friday, October 3. Down the road, inflation and higher long-term interest rates. Last week, markets were up 1% across the board, and even small cap hit a new high for the first time in four years. This week, however, is usually a different story. Quarter end after triple witching, the Dow industrials are usually down about 1% this week. That's because portfolio managers are cleaning out losers, and pension funds are doing rebalancing. It does not change our view, however, that the long-term bull is in place and higher rates and inflation are in store. Our indicator dashboard remains green; 'til next time.