Shutdown...

MONETARY

• Speaking at the Greater Providence Chamber of Commerce 2025 Economic Outlook Luncheon, Fed Chairman Jerome Powell offered some additional insight into the U.S. Economy⁵
  • Regarding the recent perceived shift in risks to both the inflation story and unemployment:
    • (Powell) “Recent data show that the pace of economic growth has moderated. The unemployment rate is low but has edged up. Job gains have slowed, and the downside risks to employment have risen. At the same time, inflation has risen recently and remains somewhat elevated. In recent months, it has become clear that the balance of risks has shifted, prompting us to move our policy stance closer to neutral at our meeting last week.”⁵
  • Businesses and Consumer remain uncertain, however keep spending anyway:
    • (Powell) “As noted in the September Beige Book, a report that gathers qualitative information from across the Fed System, businesses continue to say that uncertainty is weighing on their outlook. Measures of consumer and business sentiment declined sharply in the spring; they have since moved up but remain low relative to the start of the year.”⁵
  • Powell also reference the ‘stasis-like’ labor market which has largely settled into equilibrium:
    • (Powell) “The recent pace of job creation appears to be running below the “breakeven” rate needed to hold the unemployment rate constant. But a number of other labor market indicators remain broadly stable. For example, the ratio of job openings to unemployment remains near 1. And multiple measures of job openings have been moving roughly sideways, as have initial claims for unemployment insurance.”⁵
  • Chairman Powell also offered some useful insights into how tariffs are likely to be filtered into the economy:
    • (Powell) “The overall economic effects of the significant changes in trade, immigration, fiscal and regulatory policy remain to be seen. A reasonable base case is that the tariff-related effects on inflation will be relatively short lived—a one-time shift in the price level. A “one-time” increase does not mean “all at once.” Tariff increases will likely take some time to work their way through supply chains. As a result, this one-time increase in the price level will likely be spread over several quarters and show up as somewhat higher inflation during that period.”⁵

GEOPOLITICS

• President Trump signs proclamation initiating global-wide special tariffs on certain wood products coming into the Unted States¹
  • 10% global tariff on softwood timber/lumber and 25% on certain upholstered wood furniture and on kitchen cabinets/vanities (set to rise in Jan 2026 absent deals)¹
    • (White House) “The Secretary also found that while the United States possesses ample raw materials and industrial capacity to meet domestic wood products demand, wood production in the United States remains underdeveloped.  At the same time, imports of wood products continue to rise, signaling foreign dependence and creating vulnerabilities in the domestic industry.”¹
    • (White House) “The rates of duty established in this proclamation shall apply with respect to goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on October 14, 2025. Effective January 1, 2026, the duty rate in clause 2 shall increase to 30 percent and the duty rate in clause 3 shall increase to 50 percent, and shall continue in effect, except for countries with which the United States reaches an agreement that addresses the threatened impairment of the national security posed by imports of wood products.”
• President Trump threatens imposing significant tariffs on pharmaceutical imports unless pharmaceutical companies build manufacturing facilities within the United States²
  • (Trump) ““Starting October 1st, 2025, we will be imposing a 100% Tariff on any branded or patented Pharmaceutical Product, unless a Company IS BUILDING their Pharmaceutical Manufacturing Plant in America,”²
  • Pursuant to the tariff threat, Pfizer has agreed to lower the cost of prescription drugs for Medicaid under a deal struck with the Trump administration³
    • President Donald signaled similar deals with other drugmakers under the threat of tariffs.³
  • Proposed new tariffs largely seen as a device to initiate negotiations with drug companies to lower costs³
  • Pfizer also agreed to participate in a new website the administration plans to start called TrumpRx, which will allow people to buy drugs directly from manufacturers. Pfizer said many of its treatments will be offered at discounts that average 50% through that platform³
• President Trump threatens implementing 100% tariffs on foreign-made films entering the U.S.⁴
  • (Trump) “Our movie making business has been stolen from the United States of America, by other Countries, just like stealing ‘candy from a baby,’”⁴
  • Regarding implementation of these proposed tariffs, some degree of uncertainty remains as to how the administration would enforce a tariff on movies which are considered services, not goods⁴
  • Sites outside the U.S. not only offer enticing film incentives, but also cheaper labor and even health care. In fact, Los Angeles ranked as the sixth-best location for filming according to a survey of studio executives published in January by ProdPro, a company that tracks production trends. Toronto, Canada; the U.K.; Vancouver, Canada; Central Europe and Australia all ranked higher than Los Angeles.⁴

FISCAL

• Federal Government shutdown as a consequence of Congress not passing a Continuing Resolution by October 1^6,7,8
  • Trump Administration looking to use the government shutdown as a means to continue its ‘right-sizing’ efforts of the federal government^6,7,8
    • Russell Vought, head of the Office of Management and Budget, told House Republicans on a conference call yesterday that mass firings at the federal level would happen this week. That’s in addition to the hundreds of thousands of government workers who are typically furloughed during a shutdown^6,7,8
  • The nature of the disagreements between parties is complex, but largely focuses on the following:
    • Extension of ACA premium subsidies to avoid sharp premium hikes and coverage losses
      • Some background information:
        • Since 2021, ARPA (later extended by the IRA) boosted Marketplace subsidies by (a) removing the 400% FPL cap and (b) capping required premiums at ~8.5% of income for many enrollees. Those enhancements expire after 2025 unless Congress renews them^6,7,8
      • Restoration of pre-2025 Medicaid rules so certain groups of immigrants (refugees, asylees, some parolees, etc.) keep eligibility they had before news law trimmed it^6,7,8
        • Some background information:
          • The “One Big Beautiful Bill” narrowed eligibility across Medicaid, CHIP, Medicare, and subsidized Marketplace coverage for multiple categories of immigrants (e.g., many refugees, asylees, people with TPS and some work visas)^6,7,8

[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. Whtie House. “ADJUSTING IMPORTS OF TIMBER, LUMBER, AND THEIR DERIVATIVE PRODUCTS INTO THE UNITED STATES”. September 30, 2025
2. Wall Street Journal. “Trump to Impose New Tariffs on Pharma, Big Trucks”. September 26, 2025
3. AP. “Pfizer agrees to lower prescription drug costs for Medicaid in a deal with Trump”. September 30, 2025
4. CNBC. “Why movie production has moved out of the U.S. — and what a tariff could mean for Hollywood”. September 29, 2025
5. Federal Reserve. “At the Greater Providence Chamber of Commerce 2025 Economic Outlook Luncheon, Warwick, Rhode Island”. September 23, 2025.
6. NBC. “Trump and Democrats dig in as federal workers face furloughs”. October 3, 2025
7. The Wall Street Journal. “What to Expect From the Federal Government Shutdown”. October 1, 2025.
8. The Wall Street Journal. “Government Shutdown Begins as Funding Lapses”. October 1, 2025