Autumn brings a season of change. A time when colors shift and the leaves begin their slow descent to the ground. In some ways, the Federal Reserve seems to be entering its own fall season with interest rates finally drifting lower.
In September the Fed delivered a 25-basis-point rate cut – their first move this year and its first since December 2024, when officials lowered rates by a full percentage point during the second half of the year. Fed Chair Jerome Powell characterized the September move as a “risk management cut,” designed to cushion against a weakening labor market rather than to ignite a broad easing cycle. Powell described the economy as being in a “curious kind of balance,” with labor demand and supply both declining more sharply than expected while the U.S. economy remains fundamentally sound. It seems the decision to cut was meant to be preemptive. A gentle adjustment before the labor market’s leaves start falling too fast.
Fed officials penciled in two additional reductions for October and December, hinting that more relief could be on the way if economic conditions warrant it. Many on the Federal Open Market Committee acknowledge there is considerable uncertainty around the path of the economy and indicate they will carefully evaluate the direction of inflation and the job market to determine the need for future rate cuts.
The caution is understandable: inflation has proven sticky. Goods inflation is once again on the rise, driven in part by renewed tariffs, while services inflation, which had been declining steadily, has plateaued. Roughly 72% of the components of the Consumer Price Index are still increasing faster than the Fed’s 2% target[1]. While most expect inflation related to tariffs to be transitory, cutting rates too aggressively could reignite price pressures.
The U.S. labor market, on the other hand, does appear to be softening. Recent data shows that job growth has significantly slowed, and the number of job openings has decreased. The unemployment rate has ticked up only slightly, likely due to a reduction in immigration that has shrunk the labor pool.
While a softer labor market could indicate a broader economic slowdown, U.S. GDP has been strong. Analysts estimate companies in the S&P 500 may boost third-quarter earnings by approximately 8%, compared with the same period a year earlier. If realized, it would be the benchmark’s ninth consecutive quarter of earnings growth[2]. Tax cuts may potentially support corporate earnings next year, though the actual impact remains uncertain. While U.S. equity valuations are appearing stretched given the stock market’s ascent this year, it is comforting to see strong earnings supporting such price growth. Given this corporate stability and a roaring stock market, some economists believe corporate America has not been confined by high interest rates and question the need for further rate cuts.
Balancing the dual mandate of maximum employment and stable prices is tricky when these data points diverge. Combined with strong GDP growth, these conditions make further cuts a delicate balancing act.
Markets, however, seem to be expecting a cold snap and an early start to winter. Futures pricing implies a federal funds rate below 3% by the end of next year – more aggressive than the pace policymakers have suggested[3]. The disconnect between market expectations and Fed guidance could set the stage for more volatility, especially if inflation data or employment figures surprise in either direction.
For many investors, the question now becomes what type of easing cycle this will be: a gentle, mid-cycle adjustment or the beginning of a full autumn cascade. At present, the Fed’s cautious tone and relatively healthy economic data suggest we are in a mid-cycle, non-recessionary easing phase. That means this period of falling rates could prove supportive for a broad range of assets, though not without bouts of volatility as markets recalibrate expectations. Think of it as the swirling, unpredictable motion of falling leaves – occasionally buffeted by gusts of wind but trending gently downward overall.
Still, some risks are easy to spot. Inflation could reaccelerate if tariffs continue to lift prices. A surprisingly strong labor market could make policymakers reconsider their next moves. And any widening gap between what markets expect and what the Fed delivers could send yields and asset prices lurching in either direction. The Fed may want to choreograph a graceful fall, but the weather is not entirely under its control.
For long-term investors, this environment seems to point towards balance. In our opinion, diversification remains critical, with both equities and fixed income offering opportunity. Bonds seem to once again provide income and stability, while quality equities could benefit from lower discount rates without being derailed by inflation concerns. Real assets may retain a role as a hedge if price pressures flare again.
As autumn deepens, investors would do well to remember that the Fed’s easing cycle, like the change of seasons, rarely unfolds in a straight line. The first cut is rarely the last, but neither does it guarantee a rapid cascade. Rates are indeed falling, as are the leaves, but the question is how fast, how far, and what kind of economic weather will accompany the descent.
Fixed Income Update by Olivia O’Toole
Rate Cuts – What they mean for fixed income
To understand what lower interest rates mean for bond investors, let’s start with the basics.
The yield curve is a chart showing bond interest rates across different maturities (for example, 1-, 5-, or 10-year bonds). This curve can tell us a lot about the economic and inflation expectations, and potential interest rate changes.
Typically, the short end of the curve (short term bonds) reacts more to Fed policy moves, while the long end (long term bonds) generally reflects market sentiment on long term economic growth and inflation.
A “normal” yield curve slopes upward, meaning long term bonds offer higher rates than short term bonds. This generally makes sense: lending money for longer should earn you more. A normal curve usually indicates expectations for steady long-term economic growth. On the other hand, an “inverted” yield curve, where short term rates exceed long term rates, can indicate concerns about slower growth or even a recession.
Where are we now?
Looking at the U.S. Treasury yield curve now, it has shifted toward a more normal, upward-sloping curve after spending much of the past two years inverted. From our perspective, this aligns logically with the Fed’s recent rate cut, since short term rates tend to move in line with Fed policy.
What does this mean for bond investors?
Historically, short-term investments, such as money market funds or high-yield savings accounts, tend to see rates fall when the Fed cuts rates. With the potential for additional rate cuts in the year ahead, holding large amounts of cash in money market funds (or similar investments) may result in lower income.
In this environment, it may make sense to extend duration – that is, invest in bonds with longer maturities – to purchase bonds at attractive rates before they decline further. BSW currently utilizes laddered bond strategies, which stagger maturities across several years to balance income generation with flexibility as rates change.
But what about long-term rates?
It’s important to remember that long-term rates do not always move in line with Fed rate changes. For example, typically mortgage rates are influenced more by long term Treasury yields and broader economic conditions than by short term Fed policy.
The good news? Interest rates are still very attractive in longer term bonds – particularly in the “belly” or middle of the yield curve. In our opinion, this reinforces the benefit of laddered strategies, which allow investors to capture favorable yields while managing interest rate risk.
BSW’s perspective
We are not trying to predict the Fed’s next move. Instead, our approach focuses on being intentional and disciplined, making portfolio choices that attempt to take advantage of today’s opportunities that can earn meaningful income as rates adjust over time, while also maintaining flexibility for the future.
Equities Update: Dmitry Popov
The third quarter of 2025 seems to me a textbook case of rising optimism – perhaps too much so. Global equities had a banner run: the MSCI ACWI IMI jumped about 7.8%, and the S&P 500 around 8.1%, hitting all-time highs. Risk appetite spread across the board, as even recent laggards like U.S. small-cap stocks roared back to life. It almost felt like nothing could go wrong.
One big factor was the Fed’s pivot: in September the Federal Reserve cut rates. Investors welcomed the path of less restrictive policies. Corporate earnings were robust, providing cover for higher equity prices. And nothing captivated markets more than artificial intelligence—companies invoking AI saw their shares sprint ahead as many continue to assume its transformative promise warranted increasingly ambitious valuations.
Yet beneath the surface, the picture may be more fragile. The rally still leaned heavily on a few giant tech names – an AI-fueled narrow foundation that felt precarious. By late Q3, U.S. stock valuations were nearing dot-com bubble levels. Frothy signs were everywhere: volatility hit complacent lows and speculative assets far outpaced stable businesses. In effect, investors were “chasing headlines while underpricing risk” – a classic euphoria likely due for a reality check.
What should investors do? Stay disciplined. We can’t know if or when the AI frenzy will cool, but we can attempt to ensure our portfolios aren’t over-exposed to it. In our opinion, that means trimming froth and refocusing on fundamentals. Instead of chasing every hot AI stock, our focus is to stick with companies that have durable businesses and steady cash-flows. In our opinion, diversification is key: if U.S. tech looks pricey, include international and emerging-market stocks with cheaper valuations. Above all, a dose of humility helps – as Howard Marks would say, trees don’t grow to the sky. After such a jubilant quarter, it’s wise to enjoy the gains but also prepare for whatever might come next.
Real Asset Update: Katherine St. Onge
Higher interest rates have pressured real assets in recent years, contributing to a reset in valuations. If interest rates continue to decline, these assets may benefit from lower debt cost and more attractive yields. Reduced borrowing costs could support acquisition activity and refinancing, though the pace and extent of any recovery in transaction volume remains uncertain.
Within real estate, we continue to view multifamily housing favorably, based on current supply demand dynamics. According to analysts, demand has been outpacing supply in many markets. Housing affordability challenges have made homeownership less accessible for many households. Some higher income renters are choosing flexibility over ownership. This supply constraint may persist for the next year or two and may support rent growth, bolstering the underlying fundamentals of these investments.
This market reset has also impacted the renewable energy sector, further disrupted by a hostile political environment. The enthusiasm, eager adoption and accessible capital that supported the industry over the past decade seems to have slowed in this new environment. However, society’s growing demand for energy, especially with the rise of AI and growth of data centers, likely requires more infrastructure. Renewables seems to be a low cost and quickly scalable solution to meet our society’s growth objectives. So far this year, solar and wind have accounted for 90% of our country’s new electrical generating capacity[4].
While there are many idiosyncratic subsectors within real assets and real estate, the market reset and improved rate environment should position these areas for resiliency moving forward.
Private Equity Update: Aaron Deitz
Heading into the final stretch of 2025, private equity markets appear to have regained some wind in their sails. After a volatile first half marked by tariff uncertainty and shifting policy decisions, the Fed’s pivot toward rate cuts seems to have lifted sentiment. Lower borrowing costs are generally favorable for private equity, reducing financing burdens and supporting higher valuations.
The IPO market has also shown renewed strength. Global IPO volumes surged in Q3, likely fueled by monetary easing, expanding equity markets, and continued enthusiasm for AI-related themes. Notably, private equity–backed listings more than doubled year-over-year, and several high-profile deals – such as Figma – saw dramatic first-day gains. Sustained IPO activity could reignite the PE “flywheel” of exits and reinvestment as this exit path has been muted for the past several years.
Fundraising, however, continues to remain challenged. Through midyear, managers raised roughly $425 billion across 1,081 funds. While robust in absolute terms, capital formation has slowed amid weaker exit and distribution activity, with fundraising increasingly concentrated among large or mega-funds. Smaller and emerging managers continue to face a more challenging environment as investors have shifted preference to managers with long-established track records.
As investors deploy capital, we believe diversification across strategies, sectors, and vintages remains essential. At BSW, we emphasize consistent pacing and broad exposure across venture, growth, buyout, and special situation strategies to help mitigate timing risk and attempt to capture opportunity as the business cycle evolves.
Katherine St. Onge, Director of Investments
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This blog is created and authored by BSW Wealth Partners, Inc., a Public Benefit Corporation (“BSW”) and is published and provided for informational purposes only. The opinions expressed in the blog are our opinions and should not be regarded as a description of services provided by BSW or considered investment, legal or accounting advice. Certain information sited is from third-party sources and while we believe the information to be accurate and true to the best of our knowledge, we cannot guarantee its accuracy as there may be certain unknown omissions, errors or mistakes. Use of third-party information, including links, is in no way an endorsement by BSW. The views reflected in the blog are subject to change at any time without notice. Nothing on this blog constitutes investment advice, performance data or any recommendation that any security, portfolio of securities, investment product or investment strategy is suitable for any specific person. Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by BSW), or any non-investment related content, made reference to directly or indirectly in this blog post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Not all BSW clients will have the same experience within their portfolio(s) and certain topics discussed in this blog may not apply to all clients or investors. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from BSW. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. BSW is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of BSW’s current written disclosure statement discussing our advisory services and fees is available upon request.
[1] https://www.apolloacademy.com/the-daily-spark/?query-15-page=3
[2] https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_101025.pdf
[3] https://www.wsj.com/finance/investing/interest-rates-bets-investors-f47c12be
[4] https://www.solarpowerworldonline.com/2025/10/solar-and-wind-make-up-new-us-electricity-capacity-so-far-this-year/
