The Federal Reserve’s October rate decision could trigger unexpected shocks in U.S. stocks and Bitcoin as unresolved federal government shutdown risks cloud the outlook.
Government shutdown delays key data ahead of FOMC meeting
A partial federal government shutdown began on Oct. 1, shuttering many non-essential services including the Bureau of Labor Statistics (BLS). This shutdown has indefinitely delayed the September jobs report — a crucial gauge of labor market health expected early this month.
This data freeze comes just weeks before the Federal Open Market Committee’s (FOMC) Oct. 28–29 meeting, where the Fed’s next interest rate decision will be announced.
Despite this disruption, market optimism remains elevated.
According to GoldPrice.org, Gold prices closed at $3,886 per ounce on Friday, gaining over 48% year-to-date.
Gold’s 2025 rally reflects large central bank purchases by nations and strong ETF demand from private investors, driven by inflation concerns amid President Trump’s trade war, record U.S. national debt levels and efforts by some countries—especially BRICS members — to reduce reliance on U.S. dollar assets since the Russia-Ukraine conflict began.
At the time of writing, according to CoinDesk Data, bitcoin was trading at around $123,196, not far from the all-time-high price of $125,506, observed earlier in the day, driven by strong institutional interest and crypto ETF inflows.
Meanwhile, the Dow Jones Industrial Average and S&P 500 closed the week at record highs of 46,758.28 and 6,715.79, respectively, reflecting confidence in a smooth Fed policy transition.
Today, bitcoin, gold and the S&P 500 are at or near record highs, probably due to expectations of further rate cuts this year and next and investors wanting to hedge against the persistent and increasing inflation that seems to currently exist throughout the world.
Market consensus prices a 25 basis-point Fed cut
Futures and prediction markets overwhelmingly price in a 25 basis-point interest-rate cut at the FOMC meeting.
As of Oct. 5, The CME Group’s FedWatch Tool puts the odds at 96.2% for a 25 basis-point cut and 3.8% for no change.
As for decentralized prediction platform Polymarket, it predicts a 3% chance of a 50+ bps increase, a 90% chance of a 25 bps increase and an 8% chance of no change.
Why the Fed pausing rate cuts might not be as unlikely as traders expect
The ongoing federal government shutdown conceals a significant risk. With the U.S. Bureau of Labor Statistics (BLS) employees furloughed, vital labor reports remain unreleased, denying the Fed updated wage and employment data essential for evaluating market tightness amid persistent inflation.
The Fed faces the exceptionally difficult challenge of making a rate decision without crucial economic input — essentially flying blind.
This lack of timely data raises the very real possibility that some FOMC members may advocate for pausing the current pace of rate cuts rather than continuing as expected.
Without clear visibility on the labor market’s recent trajectory, the risk of premature easing that could destabilize inflation expectations looms large. Past Federal Reserve actions during periods of data scarcity have often leaned toward caution to avoid policy missteps.
At the same time, several factors deepen this uncertainty.
The government shutdown itself creates downside risks through furloughed federal workers and potential permanent job losses, which may worsen economic growth but whose magnitude remains unclear.
Meanwhile, many investors have positioned portfolios in anticipation of further cuts, meaning a surprise pause could unsettle markets and trigger volatility the FOMC would prefer to avoid.
Balancing these concerns, the FOMC is likely weighing continuing a modest 25 basis-point cut to sustain market confidence and hedge against economic risks. Still, the pause remains a plausible outcome given these unprecedented challenges, emphasizing that market expectations of a cut, though strong, are not guaranteed.
Private and regional data provide partial insights amid shutdown
Between now and the FOMC meeting, several private-sector and Federal Reserve regional data releases will provide partial economic signals despite the shutdown.
If these indicators show cooling inflation and moderating growth, Fed Chair Jerome Powell could proceed with the widely-expected 25 basis-point cut. Stronger signals of inflation persistence or growth resilience might push the Fed toward a pause, contradicting market pricing and increasing volatility.
If the shutdown ends by, say, mid-October, the delayed official September jobs report could be released ahead of the FOMC meeting, providing a clearer data picture and potentially validating market expectations.
Why a 50 basis-point cut is highly unlikely
Markets have largely ruled out a 50 basis-point rate cut because inflation remains above the Fed’s 2% target, especially in services where wage pressures linger.
A half-point cut would risk signaling premature easing and could destabilize the labor market and inflationary expectations.
Powell’s public statements emphasize caution and data dependency, making a more moderate 25 basis-point cut the prudent path.
How investors can protect against a Fed pause scenario
Given the potential for a policy pause not fully priced by markets, investors —particularly in crypto — should consider hedging risk:
- Put options on bitcoin and major stock indices offer a relatively inexpensive way to guard against steep downside swings.
- Reducing high leverage or position sizing in volatile assets to mitigate drawdowns.
- Increasing exposure to safe havens such as gold or Treasury bonds can provide portfolio ballast amid market stress.
- Using volatility ETFs or funds to gain from sudden volatility spikes.
Institutional investors routinely employ such strategies; retail investors have a growing number of low-cost tools to similarly prepare for tail risks.
