Government Shutdown Surpasses 40 Days – Longest In History

Market Commentary – November 10, 2025

Historically, a U.S. government shutdown does not have a material impact on the economy or the stock market.

But now that we have reached the longest in history – surpassing 40 days – stress in the system is building: government workers not getting paid for almost a month; people who rely on food stamps in need of food; the government forcing a 10% cut in the number of airline flights, with a risk of this increasing further. The shutdown may also be weighing on the stock market – which has been in a corrective phase again despite strong 3Q earnings. On Friday, the stock market was looking like it would close down, but a hint of even temporary resolutions in Washington was enough to have the market rally and close up. This tells us the market wants a resolution on the government shutdown and, once we can get it, the bullish seasonals should kick in and the year-end market rally can begin. Pressures are certainly building to get the government funded again.

Divided Federal Reserve Board: Will There Be Another Interest Rate Cut?

Different opinions are arising over the path forward on interest rates. This is also a reason why the stock market has been correcting. Last week, a dozen speakers from the Federal Reserve (Fed) spoke. The views being expressed appear to be divergent on the next direction of interest rates. As a reminder, the Fed cut interest rates 100 basis points in 2024 and this fall, it cut interest rates again by 50 basis points. The Federal Open Market Committee’s (FOMC) current consensus view is that policy is “somewhat restrictive” after the recent rate cuts, so the Fed will proceed slowly and “data-dependently,” balancing risks to employment with persistent above-target inflation. (But with the government not reporting economic data during the shutdown, the Fed has been left in a tricky spot.)

While most of the Fed speakers supported this stance, there were other viewpoints. Cleveland Fed President Beth Hammack, who has a vote on the FOMC next year, was the most hawkish, saying policy is “only barely restrictive, if at all,” giving the impression she is not in favor of a rate cut. While Fed Governor Stephen Miran, whom President Trump appointed to fill a term that ends in January, argued that stablecoins greatly increase demand for dollars, driving down the natural rate of interest, calling it the “multitrillion-dollar elephant in the room,” and favoring additional rate cuts. [Note: Stablecoins are digital dollars that are backed by the purchase of U.S. short-term Treasuries. Stablecoins are new instruments that are not yet fully understood by investors, in our opinion.]

But, in our view, the most important comments came from New York Fed President John Williams, who spoke twice last week. The New York Federal Reserve Bank is the most important in the system. It always has a vote on the FOMC and conducts all Fed interventions in the markets, called “open market operations.” Williams said the “low r* era is still with us.” The Fed refers to the natural rate of interest as r* (“r star”), so this implies he thinks interest rates should be low. The next day, he said the Fed will “soon need to grow its balance sheet,” that is, to purchase Treasuries and maintain ample reserves as Quantitative Tightening (QT) ends. Williams clearly favors lower rates. The market is pricing in 66% probability of a rate cut in December.