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Infighting At The Fed Adds To Uncertainty
The Macro Institute's Weekly Economic Primer
The Macro Institute
November 03, 2025
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We’re facing yet another week without government data, but this one stings a bit more than usual, as it’s the week we would normally get the October labor report. This data point is a must-have for anyone trying to gauge the state of the economy and a key input for monetary policy.
That said, we’re not completely flying blind. The ADP employment report is still on deck, and contrary to doubters, it offers a great deal of insight into the official payroll figures, as our chart here shows. A friendly reminder, an R² of 0.83 is exceptionally high for a single-variable relationship.
There are also several other series worth watching this week. Both Markit and ISM will release their Manufacturing and Services PMIs, each with an employment subcomponent that provides valuable real-time clues on labor market trends. Finally, on Friday we’ll get the preliminary University of Michigan Consumer Sentiment Index for the month, giving us another window into how households are navigating the current environment.
The Macro Week In Review
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The Macro Week Ahead
❌ Dissension In The Ranks
The primary market moving event last week was the Federal Reserve’s interest rate decision. For those skimming headlines, it was generally uneventful, with the FOMC delivering a widely anticipated 25 bps cut. This latest move brings total Fed easing to 150 bps since the easing cycle began last year. Monetary policy shifts usually take about eighteen months to appear in leading economic indicators, suggesting the outlook remains supportive for cyclical equities.
Sifting through the Chairman’s remarks, he appears to believe monetary policy is appropriately positioned to hold steady and test the economy’s resiliency at the current federal funds rate. Furthermore, without official government data, it makes sense to “slow down during the fog,” as Mr. Powell suggested. Like everyone else on Wall Street, the FOMC is relying on information from private sources such as Indeed.com, which provides job openings data that serve as proxies for government reports.
Equity and bond markets sold off sharply following Powell’s comment that the December decision remains uncertain. This isn’t a surprise given investors had priced in nearly 90% odds of another cut before year end. By Friday’s close, most of those losses were recovered. Markets now assign roughly 65% odds to a December cut, ~32% to no change, and just 3% to a larger move. The longer the shutdown continues, the fewer reliable data points the Fed will have, raising the likelihood of a pause.
Two Fed governors dissented at the October meeting, which is a rare occurrence. Meanwhile, new Governor Stephen Miran favored a 50-basis-point cut, while Kansas City’s Jeffrey Schmid voted to hold rates steady. Between 1936 and 2013, there were only 66 total policy dissents and just 13 from governors. The FOMC’s 12 voting members, seven governors and five rotating regional presidents, usually aim for consensus to preserve a unified message to markets. Schmid later defended his vote, arguing that the labor market remains healthier than most believe and that inflation is still too high. Dallas Fed President Lorie Logan echoed that sentiment, saying she believes the labor market is in balance. Other non-voting members, including Hammack and Bostic, expressed similar caution, favoring a hold in October and a measured approach in December.
📆 The Week Ahead
Monday’s release of the ISM Manufacturing Index is this week’s key event. The two components most closely correlated with U.S. growth, the headline PMI and New Orders, continue to hover around the pivotal 50 mark. The ongoing rate-cutting cycle should provide tailwinds to these indicators into 2026.
Attention will center on the ISM’s employment subcomponent, a strong proxy for the missing payroll data. August’s reading of 43.8 was weak, but September’s two-point bounce hints it may have been the cyclical trough. Still, several months in the 45–50 range will be needed before declaring a bottom.
On the inflation front, we’re watching the Prices Paid component closely. It captures early supply-chain pressures and remains near its highs for this cycle, which should factor into the Fed’s inflation calculus.
The ADP employment report on Wednesday is also worth watching. While it typically receives less attention than the government’s Nonfarm Payrolls report, it’s now the primary gauge for labor trends during the shutdown. ADP has also introduced a new weekly job series, which has shown growth in the +10K to +30K range in recent weeks (but the series is volatile). These readings are sluggish compared to 2023–2024, but up notably from –60K in late July.
That pace roughly matches estimates of “breakeven employment,” which is the number of new jobs required each month to keep unemployment steady. With labor force participation falling due to deportations, retirements, and disability trends, fewer new jobs are needed to hold the line. As a result, today’s employment indicators may not be directly comparable to past cycles.
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