Shutdown Showdown

MONETARY

• As was widely expected, the Federal Reserve rate its benchmark Fed Funds Target Range by 25bps to a level of 375-400bps²
  • In his post-meeting speech, Chairman Powell offering commentary on the current state of the U.S. Economy:
  • Regarding the impact of the Government Shutdown, Powell noted that effects would largely be short-term and reverse course swiftly²
    • (Powell) “The shutdown of the federal government will weigh on economic activity while it persists, but these effects should reverse after the shutdown ends.”²
  • On the absence of labor market data, Powell noted that a continuation of the “Great Stasis” trend is expected²
    • (Powell) “Although official employment data for September are delayed, available evidence suggests that both layoffs and hiring remain low, and that both households’ perceptions of job availability and firms’ perceptions of hiring difficulty continue to decline. In this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months.”²
    • (Powell) “The labor market is a place where we get, for example, we get the state level data on initial claims, which are sending sort of a signal of more of the same. We also get job openings, and we’ll get lots of survey data, we’ll get the Beige Book and things like that. So we’ll have a — we’ll have a picture of what’s going on in the labor market. And the fact that we’re not seeing an uptick in claims, or a downtick really in openings, suggests that you’re seeing maybe continued very gradual cooling, but nothing more than that. So that does give you some comfort”²
    • (Powell) “think there are two things affecting the job market, and one of them is just a dramatic reduction in the supply of new workers. So, and that’s two things. That’s declining labor force participation, which is a cyclical thing, and then there’s declining immigration, which is just a big policy change that actually began in the last administration and it has been accelerated now. So, a big part of the whole story is that supply side story. Okay. In addition, labor demand has declined and so the labor — the unemployment rate has gone down, meaning that demand for workers has gone down a little more than supply. So, that’s what’s going on, and — but it is mostly a supply function”²
  • Short term inflation expectations have ticked up slightly, but longer-term expectations remain wel-anchored²
    • (Powell) “Near-term measures of inflation expectations have moved up, on balance, over the course of this year on news about tariffs, as reflected in both market- and survey-based measures. Beyond the next year or so, however, most measures of longer-term expectations remain consistent with our 2 percent inflation goal.”²
  • Tariffs have been seen as adding an incremental amount of inflation to goods prices, however the base case is still for this component of inflation to be non-recurring in nature²
    • (Powell) “So if you add all that up, a couple things to say, one is that inflation away from tariffs is actually not so far from our 2 percent goal. We estimate, people have different estimates of what that is, but it might be five or six tenths, and so if it’s 2.8, then core PCE, not including tariffs, might be 2.3 or 2.4, in that range, something like that. So that’s not so far from your goal.”²
    • (Powell) “So that, we look at that, and the thing about tariff inflation is the base case is that it will come and it probably will increase further. But it is that it will be a one-time increase, and we’ve been very focused for all of this year at making sure that that’s the case, and thinking carefully about what are the — what are the pathways through which it could become something else, troubles in inflation. One of those would be a really tight labor market. We don’t see that. Another could be inflation expectations moving, we don’t see that”²

GEOPOLITICS

• In the first face-to-face meeting between the two in six years, President Trump and Chinese President Xi Jianping come to terms on a yearlong trade truce between the countries¹
  • Details of the trade truce include the following:
    • United States will postpone fees on Chinese ships arriving at U.S. ports¹
    • China agrees to step up work to stop the flow of fentanyl precursor chemicals¹
    • Additionally, U.S. tariffs on Chinese imports would be cut to 47% from 57%, by halving to 10% the rate of tariffs related to trade in fentanyl precursor drugs¹
    • China will also pause export controls unveiled this month on rare earths¹
    • China also agreed to buy 12 million metric tons of U.S. soybeans through January¹
    • Will also purchase 25 million tons annually for the next three years¹
    • The U.S. will also suspend for one year new Entity List restrictions that make it harder for Chinese firms to use affiliates to buy off-limits technology
    • China agrees to suspend all retaliatory tariffs announced since March 4, 2025 which affected U.S. agricultural exports¹
    • China agrees to terminate its various antitrust investigations targeting U.S. firms in the semiconductor supply-chain¹
    • Additionally, there was mention of China starting the process of beginning to buy oil and gas from resources in Alaska¹

FISCAL

• Federal Government extended its shutdown to the longest ever in nation’s history by exceeding the previous record set in 2018-2019 of 34 days³
  • Current shutdown began on Oct. 1 after Congress failed to break a stalemate over funding negotiations³
  • While the exact nature of the ongoing negotiations are not fully outlined, one of the major focus points has been the eventual termination of Affordable Care Act subsidies³
    • ACA subsidies, as enhanced by the American Rescue Plan and later extended by the Inflation Reduction Act, would simply revert back to pre-American Rescue Plan rules³
      • The program would revert to the original ACA formula (IRC §36B): where subsidies are limited to people roughly 100–400% FPL, and required contribution percentages are higher than under today’s enhanced schedule³
      • The cap on the benchmark plan premium of 8.5% of income for everyone would no longer be available under the old rules³
    • Required Contribution percentages under the Old Rules are as follows⁴:

• Required Contribution percentages under the Enhanced Rules are as follows⁵

[See Below for Disclosures & Annotations]

DISCLOSURES

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The companies presented here are for illustrative purposes only and are not to be viewed as an investment recommendation.

Tax laws and regulations are complex and subject to change, which can materially impact investment results. LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.

ANNOTATIONS

1. Reuters. “Trump shaves China tariffs in deal with Xi on fentanyl, rare earths”. October 30, 2025
2. Federal Reserve. “Transcript of Chair Powell’s Press Conference”. October 29, 2025
3. 3.NPR. “The government shutdown is now the longest in U.S. history. See how it compares”. November 5, 2025
4. IRS. “Rev. Proc. 2020-36”
5. IRS. “Rev. Proc. 2021-23”