The Federal Reserve’s October fee decision could create an unexpected shock for US stocks and Bitcoin as an unresolved federal shutdown clouds the outlook.
Government shutdown delays critical data ahead of FOMC meetings
Partial federal closures began on October 1, closing many non-essential services, including the Bureau of Labor Statistics (BLS). The shutdown delayed the September employment report indefinitely. This is an important measure of labor market health expected earlier this month.
The data freeze will take place a few weeks before the Federal Open Market Committee (FOMC) meeting on October 28th-29th, with the Fed’s next interest rate decision being announced.
Despite this turmoil, market optimism continues to rise.
Gold prices closed at $3,886 per ounce on Friday, exceeding 48% since the start of the year, according to Goldprice.org.
Gold’s 2025 rally reflects the large-scale central bank purchases by nations with inflation concerns amid President Trump’s trade war and strong ETF demand from private investors, documenting the US national debt levels and efforts by several countries, particularly BRICS members, to reduce their reliance on US dollar assets since the start of the Russian-Ukraine conflict.
At the time of writing, Bitcoin was trading at around $123,196, not far from the all-time high price of $125,506, driven by strong institutional profits and an influx of crypto ETFs, according to Coindesk data.
Meanwhile, the Dow Jones Industrial Average and S&P 500 closed the week at record highs of 46,758.28 and 6,715.79 respectively, reflecting confidence in a smooth Fed transition.
Today, Bitcoin, Gold, and S&P 500 are hoping to further interest rate cuts this year and next year, as investors want to hedge the sustained, rising inflation that appears to be present around the world today.
Market Consensus Price 25Basic Points Fed Reduction
With a 25 basis points interest rate reduction at the FOMC meeting, the futures and forecast markets are overwhelmingly rising prices.
As of October 5th, the CME Group’s FedWatch tool places odds of 96.2% on 25 basis cuts and 3.8% without change.
For the decentralized forecasting platform polymate, we predict that there is a 3% chance of an increase of 50 bps, a 90% chance of an increase of 25 bps, and an 8% chance of no change.
Is it unlikely that traders would expect to see a reduction in the Fed’s suspension rate?
The ongoing federal closures hide a significant risk. With the US Bureau of Labor Statistics (BLS) employees filling up, the key labor reports remain unpublished, denies the updated Fed’s wages and employment data, essential to assess market tensions amidst persistent inflation.
The Fed faces the extremely difficult challenge of making fee decisions without any important economic input – essentially flying blind.
This lack of timely data raises the very real possibility that FOMC members may advocate for pausing the current pace of rate reductions rather than continuing as expected.
Without clear visibility into recent trajectories of the labour market, there is a greater risk of early mitigation, which could destabilise inflation expectations. Past Federal Reserve actions during periods of data shortage have often leaned attention to avoid policy failure.
At the same time, several factors deepen this uncertainty.
The government closure itself creates a drawback risk through federal workers and potential permanent unemployment.
Meanwhile, many investors place portfolios in anticipation of further reductions. In other words, a surprise pause can destabilize the market and cause volatility that FOMC wants to avoid.
Balancing these concerns, the FOMC may continue to make modest 25 cuts to maintain market confidence and hedge against economic risks. Still, given these unprecedented challenges, the suspension remains a plausible outcome, emphasizing that market expectations for reductions are not strong but not guaranteed.
Private and local data provide partial insights amid closures
During the current and FOMC meetings, several private sector and Federal Reserve regional data releases provide partial economic signals despite the closures.
If these indicators show growth in cooling inflation and mitigation, Fed Chairman Jerome Powell can proceed with the widely anticipated 25 section cut. A stronger signal of sustainability of inflation or growth resilience will push the Fed towards a pause, inconsistent with market pricing and increase volatility.
For example, if the shutdown ends in mid-October, the official September employment report before the FOMC meeting could delay, providing clearer data images and verifying market expectations.
Why 50 basis point cuts are so unlikely
With inflation exceeding the Fed’s 2% target, the market largely excludes 50 basis rate cuts, particularly in services where wage pressures remain.
A half-point reduction could risk premature mitigation signaling and destabilize labor markets and inflation expectations.
Powell’s official statement highlights attention and data dependencies, reducing the more gradual 25 basis points and careful passes.
How investors can protect against Fed suspend scenarios
Given the possibility of a suspension of policies where the market is not fully priced, investors, especially the risk of encryption, should be considered.
- Putting options on Bitcoin and major inventory indexes is a relatively inexpensive way to prevent sudden downside swings.
- Reduce the sizing of high leverage or locations of volatile assets to mitigate drawdowns.
- Increased exposure to safe shelters such as gold and Treasury bonds could provide portfolio ballast amid market stress.
- Use volatility ETFs or funds to earn from sudden volatility spikes.
Institutional investors routinely employ such strategies. Retail investors are also increasingly offering more low-cost tools to prepare for tail risk.
Conclusion: Markets face uncertain path to the next FOMC meeting
The FOMC meeting from October 28th to 29th has been formed as a vital test for the market.
The ongoing government closures blur important labor data and create dangerous blind spots for investors and policymakers’ expectations.
The market has overwhelmingly priced a 25 basis rate cut, but a Fed suspend or delay driven by data uncertainty could lead to a rapid revision of stock and crypto. Investors should monitor private economic indicators and local inflation data in October and consider practical hedging to protect against surprising volatility.
A balanced risk attitude is essential to navigating this uncertain macroeconomic landscape.
