October 22, 2025 08:59 PM GMT Federal Reserve Monitor | North America Ahead of the October FOMC: Our Monetary Forecasts We participate in the NY Fed's Survey of Market Expectations, which collects expectations about monetary policy and the economy before each FOMC meeting. This note provides a snapshot of our responses to the survey. | M | | | | --- | --- | --- | | | | Idea | | October 22, 2025 08:59 PM GMT | | | | Federal Reserve Monitor North America | Morgan Stanley & Co. LLC | | | | Michael T Gapen | | ...

Market Overview - US stocks experienced a decline, with the Dow Jones Industrial Average falling 0.7% (over 300 points), the S&P 500 down approximately 0.5%, and the Nasdaq Composite leading losses at around 1% [1] - The market is reassessing following a strong start to third quarter earnings, particularly with Tesla's upcoming quarterly report [2] Company Performance - Netflix's stock dropped about 10% after missing earnings expectations, influenced by a tax dispute in Brazil [3] - Mattel's shares also fell due to disappointing North American sales [3] Economic and Trade Developments - Ongoing trade tensions with China are causing market uncertainty, with President Trump potentially considering significant restrictions on US software exports to China [4] - The US and India are reportedly nearing an agreement to reduce tariffs on Indian exports from 50% to as low as 15% [4] Economic Data - The US federal shutdown has delayed official economic releases, with the next major data point being the September Consumer Price Index report [5] - This inflation report is expected to influence expectations for the Federal Reserve's upcoming meeting, where a 25 basis point interest rate cut is widely anticipated [5]

Group 1: Market Performance - US stocks experienced a decline on Wednesday following a record-setting session for the Dow, with the Dow Jones Industrial Average falling 0.3%, the S&P 500 losing 0.4%, and the Nasdaq Composite down approximately 0.8% [1] - Wall Street is looking to earnings reports to boost market sentiment after positive blue-chip results on Tuesday helped the Dow reach an all-time closing high [2] Group 2: Company Earnings - Tesla's quarterly earnings report is anticipated, marking the beginning of updates from the "Magnificent Seven" companies, which could impact the recent stock rally [2] - Netflix's stock dropped over 9% after the company reported earnings that missed expectations, partly due to a tax dispute in Brazil [3] - Mattel's shares also declined as the toymaker's North American sales fell short of expectations [3] Group 3: Commodity and Economic Outlook - Gold prices continued to decline after experiencing the largest one-day drop in over a decade [4] - The US federal shutdown has delayed official economic releases, with the September Consumer Price Index report expected to be a significant upcoming data point for the markets [5] - The inflation report will influence expectations ahead of the Federal Reserve's meeting, where a 25 basis point interest rate cut is widely anticipated [5]

Core Viewpoint - Inflation in the U.K. remained steady at 3.8% year-on-year as of September, contrary to expectations of an increase, which may support the case for an interest rate cut by the Bank of England next month [1][2][4] Group 1: Inflation Data - The Office for National Statistics reported that consumer prices rose by 3.8% annually, unchanged from the previous two months [1] - Most economists had anticipated an increase to 4%, which would have been double the Bank of England's target [2] Group 2: Economic Outlook - Economists believe that the flat inflation reading suggests that inflation may have peaked and could decline towards the Bank's target in the coming months [2] - Martin Sartorius, a principal economist, indicated that price pressures are expected to ease slowly, with a more significant reduction in inflation likely not occurring until the first half of next year [3] Group 3: Central Bank Implications - The unexpected inflation data raises the possibility of the Bank of England cutting interest rates at its next policy meeting on November 6 [4] - The central bank had previously maintained its main interest rate at 4% due to inflation concerns [4] Group 4: Government Budget Considerations - The inflation figure is significant for Treasury chief Rachel Reeves as she prepares for a crucial budget statement on November 26, where tax increases are anticipated [5] - September's inflation rate will influence welfare benefits for the upcoming year, resulting in lower-than-expected funding costs [5]

Group 1 - The home building industry is facing weak demand and margin pressure, leading to a challenging market environment [1][2] - Despite a significant demand for homes, companies are reluctant to lower prices, which is necessary to adjust to current market conditions [2][3] - There is a belief that the Federal Reserve should cut interest rates to help alleviate the financial strain on the industry [1]

Core Viewpoint - The Federal Reserve is expected to lower its key interest rate by 25 basis points next week and again in December, reflecting a shift in expectations among economists regarding monetary policy adjustments [1][2]. Interest Rate Predictions - A Reuters poll indicates that 115 out of 117 economists predict a rate cut to 3.75%-4.00% on October 29, with two economists forecasting a 25 basis points cut in October and a 50 basis points cut in December [2][3]. - The likelihood of another cut in December is estimated at 71%, showing a consensus among economists [3]. Economic Conditions - The Federal Reserve is balancing the risks of elevated inflation and a weakening labor market, with a recent rate cut being the first since December [2][4]. - A government shutdown has delayed key employment and inflation data, complicating the economic outlook [4]. Labor Market Insights - Current private-sector data suggest modest layoffs and hiring, indicating stability in the job market without significant changes [5]. - Economists are divided on whether the job slowdown is due to labor demand or supply issues, which affects monetary policy responses [5]. Inflation and Unemployment Forecasts - The unemployment rate is expected to average around 4.3% through 2027, remaining largely unchanged [6]. - Inflation is projected to average above the Fed's 2% target through 2027, with consumer inflation anticipated to rise to 3.1% from 2.9% in August [6]. Future Rate Speculations - Economists are divided on future interest rates, with predictions ranging from 2.25%-2.50% to 3.75%-4.00% by the end of next year, influenced by speculation on the next Fed chair after Powell's term ends in May [7].

Market Trends & Interest Rate Expectations - South Korea's shorter-maturity government bonds are expected to get a boost [1] - Expectations for an interest-rate cut next month are spurred by measures to cool the housing market [1]

Interest Rate Expectations - Markets anticipate a 96.8% probability of a 25 basis points (bps) rate cut at the Federal Reserve meeting on October 29, 2025 [1]

Core Viewpoint - The current market environment presents a "buy the dip" opportunity, despite elevated valuations and stocks nearing record highs [2][4]. Market Performance - The S&P 500 has achieved 33 record closes in the current year and 57 in the previous year, indicating strong market performance [2]. - The market is trading at elevated valuations, raising questions about future growth potential [2]. Federal Reserve Influence - The Federal Reserve's actions have provided a tailwind for the market, particularly following its interest rate pause in September [3]. - Historical data from Goldman Sachs indicates that after similar pauses, the Federal Reserve has cut interest rates eight times, with mixed outcomes for the economy [3]. Economic Outlook - In four out of eight historical instances where the economy continued to grow post-pause, the market saw an average increase of 8% over six months and 15% over the next 12 months [4]. - The current outlook leans towards continued economic growth, but investors will need to be selective in identifying growth opportunities [4].

Core Insights - Sibanye Stillwater Ltd. (NYSE:SBSW) reached a new 52-week high as gold prices surged past $4,300, indicating strong investor interest in mining stocks [1][2] - The company's stock price peaked at $13.11 during intra-day trading, ultimately closing at $12.82, reflecting a 6.04% increase [1] - The rise in gold prices was attributed to a 2.83% increase to $4,326.58, driven by optimism for interest rate cuts and geopolitical tensions between the US and China [3] Group 1: Stock Performance - Sibanye Stillwater's stock performance was notably strong, with a 6.04% increase on the day it reached a 52-week high [1] - The stock's intra-day high of $13.11 demonstrates significant market interest and trading activity [1] Group 2: Market Conditions - Gold spot prices increased by 2.83% to $4,326.58, while platinum prices rose by 3.17% to $1,718 per ounce, reflecting a broader trend of investment in precious metals [3] - The increase in precious metal prices is linked to investor sentiment regarding potential interest rate cuts and ongoing geopolitical issues [3] Group 3: Shareholder Activity - The Public Investment Corporation (PIC) raised its stake in Sibanye Stillwater by 2.35%, increasing its total ownership to over 20%, solidifying its position as a major shareholder [4]