To The Moon

Current Situation.

With 2 weeks to go before the next FOMC meeting in Oct 28-29, there’s a new report mooting the idea of interest cut might be a mistake.

According to a new report from the Federal Reserve Bank of Dallas, the Federal Reserve Board, as well as most major economists, may be seriously wrong about the jobs market.

The research warns that the Fed and other experts may be misreading what’s really going on in the labour economy.

If the report is right, it means US central bank could be making a serious mistake by slashing interest rates too fast and too soon when inflation is still elevated.

Perhaps, this also explains why:

• Interest rate on 10-year Treasury notes is actually higher today than it was just before the Fed cut short-term interest rates in September 2025. (see below)

Yield as of time of post

• The price of gold

  , ominously, has risen $300 an ounce since the Fed’s cut, taking it above $4,000 an ounce for the first time. (see below)

Above moves are expected when investors were getting more jittery about inflation.

The Fed cut short-term rates by ¼ of a percentage point (-0.25%) last month in September, to 4% - 4.25%, and market expects it to cut two more times in 2025.

Several board members, including John Williams, Mary Daly and Chris Waller, have signaled that they want to cut rates even further.

Trump wants the Fed to slash rates aggressively. So does his latest Fed appointee, Stephen Miran.

Their Argument.

The US jobs market is slowing alarmingly, and so it is necessary to cut short-term rates to boost the economy, even though inflation is well above the Fed’s 2% targets and showing few signs that it’s about to die.

Fresh analysis from the Dallas Fed report says otherwise:

• Conventional wisdom about the jobs market is wrong.

• This is because it does not take into account the impact of the Trump administration’s huge crackdown on illegal immigration.

• That included — effect on the labour market of at least 300,000 immigrants who have “self-deported” since the new administration took office.

• And those forcibly deported.

• Reflecting a big turnaround from a couple of years ago, when a large number of immigrants were coming into US.

Bottom line.

According to Dallas Fed economist Anton Cheremukhin:

• US economy (now) need to create far fewer jobs each month in order to absorb all the new workers and keep unemployment down. 

• A dramatic reversal in immigration flows, combined with cyclical shifts in labour-force participation, has caused the monthly breakeven requirement to collapse from a peak of approximately 250,000 in 2023 to about 30,000 in mid-2025.

• It also means modest payroll gains, that might have seemed alarming in 2023, are now indicative of a stable and balanced market.

• The unemployment rate, not the monthly payroll figures, are a much better indicator of the health of the labour market now.

The Dallas Fed’s research is based on a fresh independent look at real-time economic data, including, government numbers on border crossings, for instance. 

Hypothetically.

If this approach is “correct”, then the Fed’s move to cut short-term interest rates last month may prove a mistake, as well as further cuts. 

Fed Chair Jerome Powell has already admitted that the administration’s campaign to purge the US of those here unlawfully may be a key factor in the declining payroll numbers.

This is among the reasons Powell has been resisting pressure from the White House to cut rates prematurely.

US Inflation.

US August 2025 annual CPI

It is notable that inflation is still persistently above the Fed’s 2% target. (see above)

Latest reading has the headline number at 3.2%.

However, it is an out-of-date figure, because it compares recent prices with those a year ago.

To see what is happening with prices now, it is better to check the latest data.

The Bureau of Labour Statistics (BLS) reported that prices rose +0.4% from July to August, equal to an annualized rate of +4.9%.

In normal circumstances, a Fed faced with such price pressures wouldn’t even think about cutting short-term rates.

However, they did for only 2 reasons:

• The first is the sharp slowdown to US monthly payroll numbers, including big downward revisions to previous months’ numbers.

• The second is the enormous pressure from the White House, where Trump has already tried to (a) fire Fed governor Lisa Cook and (b) publicly threatened to fire Fed chairman for resisting rate cuts.

Already, Trump has fired BLS commissioner Erika McEntarfer in August 2025 over the downward jobs revisions for recent months.

Research from the Dallas Fed report suggests that those, too, might be the result of the unintended consequences of Trump’s own administration’s policies.

Million Dollar Question.

For impending October 2025 FOMC meeting, will the Fed:

• Do the ‘right’ thing and hold off interest cut.

• Ignore the Dallas Fed report availability, sweep it under the rug and ignore its validity ?

With all the distractions happening simultaneously, should investors pay attention to non stock market related news and focus on Q3 2025 earnings only?

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• Do you think the approach documented in Dallas Fed report is sound & valid ’?

• Do you think the FOMC team will refer to Dallas Fed report, when they convene for the October 2025 meeting ?

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