The past week was a case study in optimism prevailing over adversity. Investors cheered a dovish Federal Reserve and softer inflation readings, sending equities to fresh highs despite a historic U.S. government shutdown. The Dow Jones Industrial Average climbed above 47,000 for the first time¹, and the S&P 500 reached new records² as technology shares led gains and Treasury yields retreated. What might once have caused panic—Washington’s paralysis—barely registered. Wall Street chose to focus on easier monetary policy and resilient earnings instead.
Fed Forges Ahead with a Dovish Pivot
Headline inflation for September rose just 0.3 percent, with core prices up 0.2 percent³—another sign of cooling prices after months of moderation. Released belatedly due to the shutdown⁴, the data gave the Fed cover to pivot dovish. Treasury yields fell across the curve⁵ as markets priced in another 0.25 percent rate cut next week⁶, the second this year. Though inflation remains above target⁷, officials appear more concerned with softening labor conditions and slowing growth, viewing lower rates as insurance against recession⁷.
The pivot also reflects a “data drought.” The government shutdown has halted most official releases⁹, leaving policymakers flying blind. With figures on jobs, trade, and GDP temporarily suspended¹⁰, that lone inflation print carries outsized weight. The danger is cutting rates too soon, risking a resurgence of price pressures⁷—but for now, the Fed’s bias is firmly toward easing⁸.
Shutdown Drags On, Market Shrugs
Conventional wisdom holds that a prolonged shutdown should rattle markets. Yet Wall Street’s response has been a collective shrug. Investors have treated Capitol Hill gridlock as background noise, and in the absence of new data, “no news is good news” has prevailed. Paradoxically, the vacuum may even embolden bulls.
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