No Clear Direction: Fed Indecision Meets Washington's Budget Crisis

The current market situation presents a unique challenge because the Federal Reserve is showing signs of uncertainty regarding rate cuts, and at the same time, the government shutdown is preventing the release of essential economic data. The market needs to adopt a new trading method as Fed uncertainty, combined with information restrictions, may require traders to use alternative indicators and historical market patterns instead of their usual data-based approach. 

TL;DR

• Jerome Powell stated December rate cuts are "not a foregone conclusion", dropping market probabilities from 90% to 67%.

• A month-long government shutdown has blocked employment and economic data, forcing reliance on alternative indicators. 

• Historical data shows markets gain 12.7% on average in 12 months following shutdowns.

• Traders are using ISM PMI, ADP payrolls, and University of Michigan sentiment as data substitutes while implementing protective strategies.

The double uncertainty challenge

The Federal Reserve cut rates 25 basis points on 29 October 2025, bringing the target range to 3.75%-4.00%. But Chair Jerome Powell immediately disrupted market expectations: A December cut is "not a foregone conclusion, far from it," causing market probabilities to plummet from 90% to 67% within hours. This comes as the ongoing government shutdown has suspended publication of employment reports, retail sales, and most economic data for over a month. (Source: CNBC)

Powell asked at his press conference, "What do you do if you're driving in the fog? You slow down." The economy shows no clear direction because inflation sits at 3.0% while unemployment stands at 4.3%, and two FOMC dissents show committee members maintain opposing perspectives.

Data blackout reality

The shutdown beginning 01 October 2025 left the Bureau of Labour Statistics with only one employee, the acting commissioner, with 2,000 staff furloughed. This means:

• The September employment report was never released

• The October data collection was entirely missed

• CPI, PPI, retail sales, and GDP calculations are all suspended

• Census Bureau and USDA reports discontinued

Powell acknowledged, "We're not going to have the same detailed feel for the economy." The 35-day 2018-19 shutdown did not affect BLS operations because the agency operated with funds it received before the shutdown. The Congressional Budget Office predicts GDP will experience a 1.0-2.0 percentage point decline throughout Q4 2025 due to the shutdown. 

Alternative indicators

The disappearance of official government data requires private-sector indicators to serve as the main economic direction finder. Three sources have emerged as particularly important during the current blackout: ISM PMI surveys, ADP employment reports, and University of Michigan consumer sentiment.

ISM PMI: The organisation conducts surveys of more than 400 purchasing executives throughout each month to determine if business activities are growing or declining. The index shows expansion when it exceeds 50. The manufacturing PMI index above 42.3 shows that the economy continues to expand. The measure shows a 0.60 correlation with GDP, but it remains an imperfect tool. 

ADP Employment: Covers 25 million employees from 460,000 companies. September showed 32,000 job losses while the Chief Economist described a "low-hire, low-fire economy". However, correlation with official BLS data is only 0.12 month-to-month.

The University of Michigan Sentiment: monthly surveys of more than 600 adults with a 0.90 correlation with GDP, for an outstanding level of accuracy. The economy depends on consumer spending because it accounts for 70% of all U.S. economic activity. 

Historical shutdown market performance

• October 2013 (16 days): S&P 500 gained 3.1%, hit an all-time high on the final day

• December 2018-January 2019 (35 days): S&P 500 surged 10.3% during shutdown

• Average 12-month return following shutdowns: 12.7% to 16.95%, positive 86% of the time

The VIX index shows moderate increases, but it has never reached extreme panic points, reaching its highest point at 20.5 during 2013 and 36.10 during 2018-19. 

Market trends remain unaffected by shutdown duration because the longest shutdown resulted in the best market performance. 

Current market positioning

As of November 1, 2025:

• S&P 500: 6,871.82 (up 16% YTD)

• Nasdaq: 25,982.48 (up 22.34% YTD)

• VIX: 18.96 (below 20 stress threshold)

• 10-year Treasury: 4.08%

• Fed Funds Rate: 3.75%-4.00%

CME FedWatch shows 69.3% probability of December cut, 29% for hold up from just 9% before Powell's comments.

The American Association of Individual Investors (AAII) Sentiment: 44.0% bullish (above 37.5% historical average), suggesting underlying confidence. The market shows bullish sentiment according to put/call ratios, which remain below 1.0 even though multiple uncertainties exist. 

Risk management strategies

Position Sizing: Traders decrease their standard trading position size when market clarity becomes challenging and use Average True Range (ATR) for volatility-adjusted sizing instead of using fixed dollar amounts.

Safe Havens: Gold acts as a hedge, providing protection during market declines. U.S. Treasuries and the Swiss franc/Japanese yen function as defensive investment options. 

Conclusion

The current situation of Fed uncertainty, combined with data blackouts, presents an unprecedented market environment; yet, historical patterns indicate that investors can still find investment opportunities during times of market turmoil. Previous shutdowns have produced an average gain of 12.7% in the following 12 months. The markets demonstrate solid fundamental backing because they continue to operate at near-record levels despite various market uncertainties. 

* Past performance is not indicative of future results. The above are only projections and should not be taken as investment advice.