Fall 2025 Market Comment

Justin C. Kuntz, CFP®

September 24, 2025

Inflation, Jobs, and the Fed: What to expect for remainder of 2025 and beyond

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Key Takeaways

US inflation remains sticky, but not enough to stop the Federal Reserve from cutting rates.
The labor market is cooling, with jobless claims at their highest since 2021.
The Fed is expected to cut rates three times this year, likely more than other major central banks.
These moves could weaken the U.S. dollar, especially against the euro and yen.
Globally, central banks are largely in easing mode—a condition that has historically supported equities.

Inflation: Still Elevated, but Losing Momentum

August’s inflation numbers showed prices rising at their fastest pace in seven months. Headline CPI increased 2.9% year-over-year, while “core” inflation (which strips out food and energy) held at 3.1%.

What’s driving this?

Tariffs: New trade tariffs are filtering through, lifting the cost of imported goods.
Services: Shelter, travel, and other labor-intensive services remain costly.
Food: Grocery prices jumped 0.5% in a single month, the sharpest rise since early 2023.

That said, inflation isn’t running away. Tariffs are hitting businesses more than consumers, with many retailers absorbing costs in their profit margins. This is a sign of weakening consumer demand, which has kept price pressures from spiraling.

Labor Market: Signs of Softening

The job market, long a pillar of economic strength, is showing cracks. Initial unemployment claims surged to 263,000 in early September, the highest since October 2021. Payroll growth, job openings, and hiring plans have also cooled.
In short: employers aren’t laying off workers en masse, but they’re pulling back on new hiring. That shift is enough to catch the Fed’s attention.

The Federal Reserve: From Holding to Cutting

The Fed has been on pause for nine months, holding rates steady while monitoring inflation. That’s about to change. With inflation relatively contained and the labor market softening, the Fed is expected to begin cutting interest rates next week, with a likely total of three cuts before year-end.

Historically, when the Fed restarts rate cuts after a long break, it often sparks a broader wave of easing across global central banks. This time should be no different.

Global Central Banks: Moving in Tandem

More than 90% of the world’s central banks have cut rates in their most recent policy moves.

The European Central Bank (ECB), Bank of Canada (BoC), and Bank of England (BoE) have all eased this year, though not as aggressively as is expected from the U. S. Fed. The Bank of Japan (BoJ), unusually, is tightening policy—a rare divergence from the Fed.

When central banks move together, markets tend to view it as a potentially powerful tailwind for global equities. The last sustained period of broad-based easing was in late 2024, just as the Fed began its current cycle of easing. Historically, similar moments (2002, 2003) have coincided with strong stock market performance.

The Dollar: Poised for Weakness

As the Fed cuts rates more aggressively than its peers, the U.S. dollar is likely to weaken. Historically, the dollar tends to depreciate after the Fed resumes easing following a long pause.

Which currencies stand to benefit?

Euro & Yen: Historically, the dollar falls most against these currencies.
Canadian Dollar: Tends to strengthen against the dollar, though to a lesser degree.
British Pound: Results are mixed, reflecting the U.K.’s own economic struggles.

For investors, a weaker dollar can make U.S. exports more competitive abroad, but it also reduces purchasing power for Americans buying goods or traveling overseas.

Investment Implications

Equities: Broad global easing has historically supported stock markets. If inflation expectations remain anchored, equities could benefit from renewed liquidity.
Fixed Income: Falling rates are supportive of bonds, but what happens to short term bonds may be different than longer duration bonds, long term rates are unlikely to move dramatically.
Currencies: Dollar weakness could create opportunities in international markets, particularly Europe and Japan.
Commodities: A weaker dollar often boosts demand for dollar-denominated commodities like gold and oil, even cryptocurrency.

The economic picture is shifting. Inflation is still sticky but not accelerating, and the labor market is losing steam. That’s enough for the Fed to pivot from holding to cutting. While this creates near-term uncertainty, it also sets the stage for a more supportive environment for risk assets, particularly if global central banks continue to ease in tandem.

At Pacific Wealth Management, we’re monitoring these developments closely. Rate cuts, a softening dollar, and global central bank coordination all have significant implications for our investment portfolios. As always, our focus remains on proactive management — navigating both risks and opportunities to protect and grow wealth.

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