US Economic Resilience Amid Government Shutdown
The US economy continues to outperform global peers, even as the prolonged government shutdown enters its 38th day. Despite the shutdown’s drag on growth, the US dollar and stock markets have rallied, with the Atlanta Fed’s GDP tracker estimating nearly 4% growth for the third quarter. However, the shutdown’s persistence is beginning to disrupt economic activity, with approximately 1.4 million federal employees missing paychecks, half of whom are furloughed while the rest work without pay. Analysts estimate each week of the shutdown shaves about 0.1% off GDP, raising concerns about further economic fallout if the impasse continues.
Federal Reserve Rate Cut Uncertainty
The Federal Reserve resumed its easing cycle with a rate cut in late October, citing a weakening labor market. However, Chair Jerome Powell has attempted to temper market expectations for another cut in December. As of early November, derivatives markets still price in a roughly two-thirds chance of a December cut, but there is growing skepticism among analysts. Persistent inflation—headline prices have risen for five consecutive months—may prompt the Fed to hold rates steady unless the labor market deteriorates further. The lack of timely US economic data due to the shutdown complicates the Fed’s decision-making and market forecasting.
Diverging Global Growth: Europe Stagnates, Asia Splinters
Globally, economic performance remains uneven. The US stands out for its relative strength, while Europe faces near-stagnation, with Germany’s economy in particular continuing to sputter. The European Central Bank appears to have completed its easing cycle for now, though risks of a rate cut next year remain as growth falters.
In Asia, Japan is pursuing reflationary policies, but at the expense of currency stability—the yen has been the weakest major currency, falling over 4% in the past month. China’s economy is slowing, though authorities are cautiously loosening policy to support growth. Meanwhile, India and Southeast Asia are bright spots, benefiting from supply chain diversification and robust domestic demand.
Currency Markets: Dollar Strengthens, Yen and Sterling Weaken
Currency markets reflect these global divergences. Bannockburn’s World Currency Index, tracking the largest economies, fell for the second consecutive month as most major currencies declined against the US dollar. The Japanese yen led losses among major currencies, while the British pound also weakened notably. The Russian ruble was a rare exception, appreciating by over 2%. The Canadian dollar outperformed among high-income peers, losing less than 1%, which is typical in a strong US dollar environment.
Geopolitical Tensions and Policy Uncertainty
Geopolitical crosswinds continue to unsettle markets. The US government’s tariffs, imposed under the International Emergency Economic Powers Act, are now facing a Supreme Court challenge that could have significant implications for trade policy and market sentiment. Meanwhile, ongoing conflicts in Ukraine and the Middle East, as well as tensions in East Asia, add to investor caution.
Consumer Sentiment and Holiday Spending
Despite widespread pessimism about personal finances and the impact of the government shutdown, American consumers are expected to spend more this holiday season than last year. The National Retail Federation forecasts over $1 trillion in total holiday sales, even as a University of Michigan survey finds consumer sentiment near record lows. Rising prices for electronics and other goods are squeezing household budgets, but spending appears resilient for now.
Outlook: Navigating a Precarious Global Economy
As 2025 draws to a close, the global economy is not in crisis but remains precarious. The rules of international finance are being rewritten in real time as policymakers, investors, and businesses adapt to shifting tectonic plates of monetary policy, geopolitics, and structural change. The coming weeks will be critical as central banks weigh their next moves, governments confront fiscal and political challenges, and markets seek clarity in a world marked by uncertainty.