The commentary provides Keaney Financial Services Corp.'s (KFSC) views and our personal interpretations of the data based on the latest available output from our proprietary KFSC Core Macro Regime Model as of November 21, 2025. Macroeconomic data releases have been heavily disrupted by the prolonged federal government shutdown earlier in the fall, which prevented official collection and publication of key indicators (including the October Employment Situation and Consumer Price Index (CPI) reports). Where official data is unavailable, we rely on private-sector proxies, nowcasts, and partial releases. The core conflict remains the paradoxical resilience of the labor market in the face of moderating inflation. This ambiguity forces the Federal Reserve (Fed) to proceed cautiously with easing, despite other indicators suggesting a softening economy.
SIMPLE TAKEAWAY: This is the core dilemma for policymakers: a resilient jobs market prevents the Fed from easing aggressively, even as inflation moderates. This forces them into a restrictive, wait-and-see holding pattern, as any false move could either reignite prices or crush economic momentum.
1. The Growth Outlook: Resilience Fading Amid Shutdown Distortions
Latest proxies suggest that the real economy is losing momentum after a strong Third Quarter (Q3), with labor market weakness becoming more pronounced.
Data Accuracy Note: Official October household survey data (unemployment rate) was uncollectible and will never be released due to the 43-day government shutdown.
- Labor Market Softening: Private proxy data (Automatic Data Processing (ADP)) reported a net gain of approximately +42,000 private-sector jobs in October [1]. Chicago Fed nowcasts estimate U-3 unemployment at approximately 4.4% [1] (up from 4.3% in August), aligned with surging continuing claims and layoff reports.
- Demand Receding (JOLTS Proxy): Private proxies indicate Job Openings and Labor Turnover Survey (JOLTS) Job Openings fell sharply (estimated in the 8.2 to 8.5 million range) [12] in October, and the Quits Rate eroded to approximately 2.1%, signaling declining worker confidence—precisely the demand destruction the Fed seeks for sustained easing.
- Manufacturing Contracting: The October Institute for Supply Management (ISM) Manufacturing PMI confirmed a reading of 48.7 [3] (indicating contraction for the eighth consecutive month).
- GDP Still Solid but Risks Rising: Q3 real Gross Domestic Product (GDP) advance estimates remain robust (approximately 4.0–4.2% annualized) [2], but Fourth Quarter (Q4) nowcasts are softening due to shutdown effects and credit constraints.
SIMPLE TAKEAWAY: The economy is losing momentum rapidly, as confirmed by manufacturing contraction and sharp declines in job openings. Although a strong Q3 GDP provided a buffer, the accelerating weakness in industrial activity and labor demand (as indicated by JOLTS) signals rising layoff risks. This deceleration requires increased downside protection and a focus on companies with high-quality, resilient earnings.
2. The Policy Constraint: Inflation Easing Rapidly, Enabling Cuts
Inflation has fallen faster than anticipated, removing the "sticky" trap and giving the Fed room to support growth.
- Inflation Momentum Cooling: The official October Consumer Price Index (CPI) was canceled indefinitely. Cleveland Fed nowcasts indicate that headline and core inflation are moderating to approximately 3.0% year-over-year (y/y) [9], and the Atlanta Fed Sticky-Price CPI has cooled to approximately 3.3% y/y.
- Rates Easing: The Fed has cut rates multiple times in 2025; the Fed Funds target range is 3.75–4.00% (effective approximately 3.95%) [8] following recent reductions.
SIMPLE TAKEAWAY: Policy rates are easing but remain restrictive. The Fed's cuts have reduced the cost of short-term financing for banks; however, long-term consumer borrowing costs, such as those for mortgages and cars, are influenced by the bond market. This distinction means that financial markets receive relief, but high long-term rates continue to keep household financial pressure high.
3. The Credit Crunch and Global Warning Signs
Financial plumbing remains strained, although easing policy is beginning to take effect. We also note the growing risks associated with slowing international growth.
- Credit Still Tight: Latest Senior Loan Officer Opinion Survey (SLOOS) (October 2025, covering Q3) showed ongoing tightening, especially in Commercial Real Estate (CRE) and riskier Commercial and Industrial (C&I) loans (net approximately 35–41%) [5].
- Yield Curve Steepening: The 10-Year/2-Year Treasury spread is now positive at approximately +0.55% [10] (10Y at $\sim$4.07%, 2Y at $\sim$3.51%). This resolution of the inversion signals that the worst of the monetary crunch may be passing.
- Global Slowdown Confirmed: The J.P. Morgan (JPM) Global PMI is barely expanding at approximately 50.4–50.6 [13], and China Caixin PMI remains borderline contraction at approximately 49.8–50.2% [13].
- Extreme Valuation Risk: The Equity Risk Premium (ERP) is extremely low, at approximately 0.5–1.0% [14] (versus the 10-year median of 3.5%), indicating that equities remain highly priced relative to the risk-free rate, which increases vulnerability.
SIMPLE TAKEAWAY: Financial risks persist despite the healing yield curve. While the positive curve steepening is a forward signal of recovery, tight credit standards (SLOOS) and dangerously high equity valuations, as seen in Equity Risk Premiums (ERP), remain systemic warning lights. We maintain an over-weighted exposure to Physical Gold Trust as a critical systemic hedge against currency debasement and geopolitical risk.
Important Disclosures
This commentary is for informational purposes only and should not be considered a recommendation to buy or sell any security or the provision of specific investment advice.
The opinions and forecasts expressed are those of Keaney Financial Services Corp. as of the date of this commentary. They are subject to change at any time based on market and other conditions and may or not come to pass.
The KFSC Macro Regime Model is a proprietary tool. Its analysis is based on historical data; however, it in no way guarantees future results or provides a guarantee against loss. Past performance is not indicative of future results.
Investing in commodities involves increased risks, such as political, economic, and currency instability, and rapid fluctuations, which can lead to significant volatility in an investor's holdings. Commodities may not be suitable for all investors.
All investing involves risk, including the possible loss of principal. Although important, asset allocation, risk management, and diversification strategies do not guarantee generating profits or shielding against losses. Please consult with your financial advisor to determine if the strategies discussed are suitable for your personal financial situation. Consult your qualified financial, legal, or tax advisor before making investment decisions.
Research Disclosure
Our research and data may include contributions from paid non-affiliated markets and macroeconomic analysts and economists. We have also incorporated multiple artificial intelligence (AI) platforms to assist us in researching, diagnosing, absorbing, analyzing, and illustrating data with greater efficiency. Because our management and strategies are data-research-driven, our goal is to utilize information that we believe to be accurate, validated across multiple sources where possible. It is critical for clients to understand, however, that all data is subject to error and. no amount of research or analysis can eliminate the inherent risks of investing or guarantee a specific outcome.
References
- Bureau of Labor Statistics / private proxies & Chicago Fed nowcasts (various November 2025 releases).
- Bureau of Economic Analysis & Atlanta Fed GDPNow (Q3 2025 estimates).
- Institute for Supply Management (October 2025 Manufacturing PMI, released November 3).
- Census Bureau. (2025, November 15). Monthly Retail Trade Report, October 2025 (Delayed due to shutdown).
- Federal Reserve Board. (2025, November 10). Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), Third Quarter 2025.
- Federal Reserve Board. (2025, November 15). Financial Accounts of the United States (Z.1), Consumer Debt Service Ratio, Third Quarter 2025.
- Federal Reserve Bank of New York (NY Fed). (2025, November 21). Reverse Repurchase Agreement Operations Data.
- Federal Open Market Committee (FOMC). (2025, November 2). Statement from the Federal Open Market Committee.
- Bureau of Labor Statistics / Cleveland Fed Inflation Nowcasting (October 2025 proxies).
- Federal Reserve Bank of St. Louis (FRED) & Treasury data (daily yields/breakevens as of November 21).
- Bloomberg & market quotes (gold spot price as of November 21).
- Bureau of Labor Statistics / private-sector proxy (e.g., ADP/Challenger) on Job Openings and Labor Turnover Survey (JOLTS), October 2025.
- S&P Global / J.P. Morgan (October 2025 Global PMI releases).
- Bloomberg & various sources (Nov 2025 Equity Risk Premium calculated as 10-Year Earnings Yield less 10-Year Real Yield).