BND Scope: Issue 11 – Interest Rate Cut Between Unemployment and Inflation

September was marked by critical developments for the U.S. economy and global trade. The Fed’s rate cut, the historic revision in the labor market, stagflation debates, and fluctuations in investor confidence will shape the course of the coming period. At the same time, it was a month when dependence on China in global supply chains was questioned, competition in the U.S. electric vehicle market intensified, and billion-dollar investment decisions by major corporations came to the forefront.

In recent weeks, a series of data points have clarified the picture for the U.S. economy. The Bureau of Labor Statistics (BLS) announced that by March 2025, the economy had created 911,000 fewer jobs than previously reported—one of the largest revisions in history. Coming just after President Trump dismissed the BLS Director, this deepened concerns about the agency’s independence and credibility.

On top of that, consumer inflation rose to 2.9% in August, while jobless claims climbed to a four-year high. The economy began flashing “stagflation” signals: slowing growth, rising unemployment, yet persistently higher prices. The Fed’s dilemma was clear: cut rates to ease unemployment, but risk fueling inflation at the same time.

On Wednesday, the Fed made its move, cutting rates by 25 basis points for the first time in nine months. Powell’s message was straightforward: “supporting a weakening labor market.” Yet the cut failed to calm markets; stocks briefly rallied before closing lower.

Attention now turns to the “wall of cash”: $7.6 trillion parked in money market funds. Will falling rates push some of this into riskier assets? Wall Street is debating, though most analysts argue much of it is held by institutional investors and unlikely to flow back meaningfully into markets.

Meanwhile, investors are flocking to Treasuries. Two-year yields dropped to their lowest since 2022, and the 10-year slid below 4%. This signals expectations for slower growth and more Fed cuts ahead.

With weakening labor, upward inflation, and fragile investor confidence, the U.S. economy faces pressure on three fronts. The Fed’s next steps will be critical.

Decoupling from China or Just Diversifying?

Rate Cut, Weak Labor Market, and Stagflation Fears

The outlook for the U.S. economy is increasingly complex. Mark Zandi, Chief Economist at Moody’s Analytics, warns that one-third of the economy is already in recession or at high risk, another third is stagnating, and only the remaining portion is still expanding. New York and California’s performance will be decisive: if they weaken, a nationwide recession could become unavoidable.

Still, consumer spending remains resilient. In July, expenditures rose 0.5% month-over-month. Despite inflationary pressures, demand for cars, furniture, and durable goods stayed strong. Campaigns such as Amazon Prime Day and stock market gains further boosted the numbers. Rising incomes are helping to sustain consumer appetite — at least for now.

But Zandi warns that this resilience may not last. Job postings are declining, and payroll growth has slowed to just 35,000 per month. More worryingly, over half of industries have already started cutting jobs, a typical pattern seen ahead of recessions.

The bottom line: Consumers are still spending today, but if tariffs, inflation pressures, and rising job losses converge, the U.S. economy could face a sharp slowdown before year-end.

Overall Assessment

September’s data and corporate headlines highlight an economy that is both fragile and transforming. The Fed’s rate cut marks the start of a new cycle, while trade frictions and supply chain realignments continue. On the sectoral front, EVs, advanced manufacturing, and biotech investments are at the forefront. For Turkish investors, the message is clear: risks are mounting, but so are the opportunities—if you know where to place your bets.

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The EV market wind has shifted. Tesla’s U.S. market share fell to 38%—its lowest since 2017. Overall EV sales grew 14%, but Tesla managed only 3.1%. Aggressive moves from Hyundai, Kia, Toyota, and Honda are reshaping the game. The takeaway: without model and price diversity, market share erodes.

Meanwhile, Apple is preparing a massive manufacturing push: $600 billion over four years, spread across 79 facilities. With 400,000 unfilled manufacturing jobs in the U.S., this wave will be felt most in components, automation, and digitalization—pointing to a gradual supply chain redesign rather than overnight transformation.

In healthcare, GSK announced $30 billion in U.S. investments, including $1.2 billion in bioprocessing and AI. A new biologics facility is planned in Pennsylvania, alongside modernization in other states. Big pharma is bringing R&D and production back to the U.S., driven by supply security and pricing pressures.

At BND Consulting, we’re here to support your investment decisions with insight, clarity, and strategy. Reach out to us any time—we’re ready when you are.

EV Competition, the Apple Wave, Biopharma Investments