Market Overview, September 30, 2025
Summary
The near-term issue is not “rate cuts equal liquidity,” but that the Fed will remain cautious amid fiscal expansion, tariffs, and growth. HashFun’s positioning is cautious, with noticeable selling from both HashFun and Prime Broker perspectives in recent weeks. Powell called the cut “precautionary”; his comments on excessive stock valuations came only after repeated questions from the host. The speaker still expects 2 cuts this year, while adding that at least 1 cut is likely and 2 cuts are more probable, but the “terminal rate is 3%” and the US is “not in a major liquidity cycle.”
Rate cuts may not drive a meaningful decline in long-end yields; a government shutdown could instead create a curve-trade window. If the shutdown shock pushes long yields back toward 4.05%, the speaker would look at a steepener trade. The year-end equilibrium view remains 4.10%–4.25%, with a midpoint around 4.20%. Payroll is expected around 50K and unemployment near 4.3%, but a shutdown could prevent the data from being released on schedule.
The US looks more like it is in a fiscal and AI Capex cycle than a monetary-easing cycle. Unlike China’s declining marginal returns on investment after 2008, the speaker sees US Capex returns and margins remaining high, with healthy household balance sheets providing support. The real wager is whether AI can deliver productivity growth—“If efficiency improves, anything is possible.”
Q2 GDP growth of 3.8% does not prove that the outlook is secure, and policy transmission lags by at least roughly 6 months. Companies are currently passing only about 50% of tariff costs through to consumers, and that share could continue to rise. The speaker is therefore more concerned about Q4 and next year’s Q1, while the positive impulse from tax cuts and Capex will only emerge gradually after next year’s Q1, with the overall impact mainly visible in Q2.
Immigration restrictions have not yet been fully reflected in inflation because rising labor-force participation has temporarily filled the labor gap. But participation has a ceiling. H-1B tightening and policy fears—including possible deportation—could keep some of the roughly 11M immigrants from working, causing pressure on service costs and growth to emerge later. “The stock matters more than the flow.”
A government shutdown is highly likely but may last only a few days to a week, making it more of a market disturbance than a systemic shock. If it lasts more than a week, the speaker estimates a 10–20bp hit to employment and Q3 GDP. Selling pressure has historically come before shutdowns, yet the market has risen this time, and the Fed could ease further if growth is hit. It is more like “WWE—just play-fighting,” not a US government default.
The deeper institutional issue than the shutdown is US institutional independence, but the speaker believes Trump currently lacks the ability to use the Lisa Cook case to fire Powell. A lower court ruled against the government, the Supreme Court did not stay the ruling at the time, and Cook still attended the Fed meeting on the 17th. The speaker’s blunt conclusion: “He can’t even fire Lisa Cook, let alone Jay Powell.”
Deep dive
1. The Fed will keep cutting rates, but will not launch a monetary-liquidity cycle
HashFun’s positioning is relatively cautious; in recent weeks, noticeable selling has emerged from both HashFun and Prime Broker perspectives. Near-term uncertainties include the risk of a government shutdown and comments from several officials, Powell, and the relatively hawkish Hamrick after the FOMC.
Powell described the cut as “precautionary,” meaning a preemptive move against potential risks. The market seized on his comment that stocks may be overvalued, but the speaker stressed that Powell did not issue the warning proactively; he was responding after sustained questioning from the host.
Trump wants Powell to cut rates quickly. The White House is more focused on pushing Capex at scale during the AI cycle and raising efficiency through deleveraging, deregulation, higher spending, tax cuts, and the BBB bill, allowing inflation to fall naturally. The Fed sees a different chain reaction: tax cuts, government spending, and tariffs could all lift inflation, so it must wait for the policies to take effect before reassessing.
The speaker expects 2 rate cuts this year, adding that at least 1 cut is likely and 2 cuts are more probable. He continues to hold that the long-run “terminal rate is 3%.” This is still a fiscal cycle, “not a major liquidity cycle.”
2. The six-month data lag makes Q4 and next year’s Q1 more concerning than Q2
Q2 GDP came in at 3.8%, above expectations, but did not change the speaker’s growth view. He never expected Q2 to be particularly weak; his real concern is Q4 and next year’s Q1, because the impact of April’s tariffs would not begin to show up until October at the earliest.
Companies are currently passing only about 50% of tariff costs through to consumers and absorbing the rest themselves. As the pass-through ratio rises, both inflation and growth will be affected. “These effects take time to show up—at least 6 months.”
Tax cuts and Capex also transmit with a lag. The speaker estimates that next year’s Capex impulse could add roughly 50bp to GDP. Even if the policy is implemented in November, the impact would only begin to emerge after next year’s Q1; the overall fiscal effect would mainly turn positive in Q2. Strong Q2 data cannot be extrapolated linearly.
3. Long-end yields will not plunge with the front end; a steepener opportunity emerges around 4.05%
The speaker repeatedly emphasized that long-end yields are unlikely to fall by the same magnitude after rate cuts. The front end is driven by the Fed, while the long end is also constrained by factors such as Treasury demand next year, so several cuts alone will not produce a meaningful decline.
If shutdown headlines push long-end yields back toward 4.05% and they continue lower, he would revisit the steepener trade. That is simply a matter of waiting for the market to offer the price; it is not certain to materialize. His year-end equilibrium range remains 4.10%–4.25%, centered around 4.20%.
Employment data could deliver a short-term shock. He expects payroll around 50K and unemployment near 4.3%, but if the government shuts down, Friday’s report may not be released at all, creating additional uncertainty for rates markets.
4. AI Capex still carries an efficiency dividend, while healthy household balance sheets provide a buffer
The speaker agrees with the Morgan Stanley Asset Management CIO’s view that the US is in a Capex cycle. China’s marginal investment efficiency declined after its post-2008 spending on railways and factories; US Capex returns remain strong, AI investment margins are still high, and the cycle has room to run.
A favorable starting point for this cycle is the health of US household balance sheets, with household net worth still rising. The speaker’s comparison: Chinese disposable income is roughly 40% of GDP, versus about 80% in the US; China’s total debt is more than 20% above total deposits and may already be around 30% higher.
China cannot repair household balance sheets through a rising stock market alone because market wealth is concentrated heavily in the tail and income distribution is unequal. It also lacks a capital-market investment structure as broad and closely linked to pensions as the US 401(k) system. The transmission from US equities to household net worth is much more direct.
Silicon Valley is ultimately betting on whether AI can translate into productivity growth, not merely on the scale of capital spending. “If efficiency improves, anything is possible”—that remains a very large wager.
5. Most tariffs may already be in place; the next inflation risk comes from the existing labor stock
The speaker believes the bulk of the tariff policy may already be behind us, but calls tariffs on foreign chips and drugs not produced in the US “completely nonsensical”: the bottleneck in pharmaceuticals is not production, but R&D and clinical-trial costs.
He noted that a clinical trial in the US can cost 100x more than in China. Patient recruitment alone costs at least 10x as much and may be dozens of times more expensive, while China’s process is smoother. After the US cut basic medical research funding, he said he had heard that Harvard Medical School had stopped hiring and was nearly unable to pay professors’ salaries, while Johns Hopkins was not taking PhD students this year. Requiring drug production to return to the US does not solve the R&D problem.
Foreign immigration has not increased as previously expected and has not yet clearly pushed up service inflation because labor-force participation has continued to rise, with people who previously were not working filling the labor gap. But this buffer has a ceiling; wages cannot be contained indefinitely through higher domestic participation.
H-1B tightening and the possible deportation of some existing immigrants could leave a portion of the roughly 11M immigrants out of the workforce because of policy concerns. The speaker’s key distinction is that “the stock matters more than the flow,” with the inflation and growth consequences potentially emerging later this year.
6. Shutdown is political theater; institutional independence is the real institutional focus
The House proposal would delay the decision by 7 weeks until November, but ending debate in the Senate requires 60 votes. Democrats currently have roughly 51–53 votes and cannot move immediately to a final vote. The core dispute is the extension of ACA subsidies: Democrats see it as a political achievement, while Republicans see it as a major Democratic failure—“one side thinks it is a treasure, the other thinks it is garbage.”
Trump threatened to permanently fire federal employees who were merely placed on unpaid leave if Democrats blocked funding. Democrats also need the issue to “stay visible.” The speaker therefore sees a high probability of a shutdown; Polymarket may already have been above 70% at the time, but the duration would likely be only a few days to a week.
If the shutdown lasts more than a week, the speaker estimates a 10–20bp hit to employment and Q3 GDP. The market knows the problem will ultimately be resolved, and this is not a US debt default. “It’s WWE—just play-fighting”; weaker growth could also make the Fed more accommodative, so the net market impact may not be negative.
The final institutional focus is “agency independence.” Citing the Nixon episodes, Trump’s demand to replace prosecutors to pursue Comey, and Lisa Cook’s mortgage-disclosure case, the speaker sees a challenge from executive power to independent agencies and judicial process. In the Lisa Cook case, a lower court ruled against the government, and the Supreme Court did not stay the ruling at the time. Cook still attended the Fed meeting on the 17th, leading the speaker to believe the ruling may favor her.
This is also the basis for his assessment of whether Trump can fire Powell: for now, Trump appears unable to fire even Lisa Cook, let alone Powell. Several former Fed chairs also told the Supreme Court that Fed independence is essential to the functioning of the US economy, the dollar itself, and the dollar’s credibility; the Fed cannot become an institution where “if you tell me to print, I print.”