US Economy: Weekly Commentary – October 20, 2025

US Market Review

Treasury yields fell on credit concerns. Equities rallied, led by real estate. Regional banks slumped on fraud losses. Dollar softened, oil eased, gold surged, and Bitcoin declined.

Treasury yields declined over the week, with the short end of the curve outperforming. The U.S. 10-year yield fell to 4.0% amid renewed credit concerns. Negative credit developments from regional banks intensified investor anxiety following recent incidents involving First Brands and TriColor. Zions Bancorporation, Western Alliance, and Jefferies came under notable pressure. Demand for U.S. Treasuries strengthened as investors sought safety amid rising credit default risks, limited economic data, and ongoing U.S.-China trade uncertainty.

U.S. equities advanced across the board last week. Micro- and small-cap stocks gained 2.45% and 2.40%, respectively, while large caps rose 1.70%. The “Magnificent 7” climbed 2.45%. Among sectors, Real Estate led the gains, up 3.35%, while Financials edged only 0.05% higher. Loss disclosures from Zions and Western Alliance related to fraudulent loans reignited concerns over credit quality. Regional banks recorded their second-worst trading day since the Silicon Valley Bank episode in March 2023.

The U.S. dollar weakened 0.28% against the euro. WTI crude oil declined 1.03% amid easing geopolitical tensions and localized supply challenges. Reports of a cease-fire in Gaza and plans for a Trump–Putin summit improved market sentiment, while a fire at BP’s Indiana refinery led to short-term supply disruptions in the U.S. Midwest. Gold rose 5.75% over the week, whereas Bitcoin declined 6.37%.

US Market Views Synopsis

The Fed’s Beige Book shows ongoing U.S. economic weakness, rising costs, and soft labour demand, supporting continued rate cuts through 2026 as policymakers prioritize growth over inflation.

The Federal Reserve’s Beige Book reveals ongoing economic softness, bolstering expectations for continued rate cuts through 2025–2026. Most districts report stagnant or weakening activity, with subdued labour demand and increasing layoffs amid slower growth and rising use of AI. Costs for tariffs, insurance, and technology are outpacing selling prices, pressuring profits. Fed Chair Jerome Powell’s recent comments support further easing, with 25-basis-point cuts expected in October and December. Analysts anticipate two more cuts in 2025 as the Fed prioritizes labour market weakness over inflation, which could rise modestly in the short to mid-term. Another rate cut this year is likely.

Beige Book

The Federal Reserve’s Beige Book shows slowing economic activity. Muted labour demand and rising input costs support continued rate cuts through 2025–2026 amid persistent uncertainty.

The Federal Reserve’s most recent Beige Book underscores persistent weakness in the U.S. economy, reinforcing expectations that the Fed will continue its rate-cutting strategy in the near term. The report, which compiles anecdotal feedback from contacts across all 12 Federal Reserve districts, suggests a modest slowdown in economic activity over the past eight weeks compared with August, with three districts reporting slight growth, five reporting no change, and four indicating modest softening. Labour market conditions remain subdued, as demand for workers is muted across districts and sectors, and a growing number of employers are reducing headcounts through layoffs or attrition, citing weaker demand, heightened economic uncertainty, and, in some instances, increased investment in artificial intelligence technologies. On the pricing front, several districts report that input costs are rising faster than selling prices, placing continued pressure on corporate margins, with tariffs, insurance, healthcare, and technology among the primary cost drivers. The Beige Book also notes a slowdown relative to the August report, when four districts had indicated modest growth and most reported flat employment. Fed Chair Jerome Powell’s recent remarks and comments from Governor Stephen Miran highlight the urgency of returning interest rates to neutral, supporting market expectations of 25 basis point cuts at both the October and December FOMC meetings. Analysts currently anticipate two additional rate cuts in 2025, with the possibility of further easing in 2026, contingent on improved economic sentiment, looser financial conditions, trade clarity, and renewed corporate investment and hiring. Overall, the Beige Book portrays a U.S. economy lacking significant momentum, suggesting that the Fed is likely to maintain a patient but accommodative monetary policy stance in the months ahead.

We expect another rate cut this year. The Fed will focus on labour market weakness rather than inflation, which we believe could rise again in the short to mid term.