Monthly Market Outlook September 2025

2025 continues to be a very busy year for all market participants. Final tariffs are mostly settled, but now the focus has shifted to their effects and to the Fed. September will be filled with central bank meetings, many of which will include updated economic forecasts. For the Fed in particular, September will be a key month for both policy and politics. Markets are still pricing in Powell’s “shifting balance of risks may warrant adjusting our policy stance” comment from his Jackson Hole speech. 

Macro View 

Tariff negotiations largely ended in August. The European Union and Japan deals were important due to the trade volumes involved, with Trump emerging as the clear winner in both cases. After those agreements, Trump raised tariffs on India (excluding electronics and pharmaceuticals) to 50% from 25% because of India’s oil purchases from Russia. Another adjustment expanded steel tariffs to cover 407 additional goods, ranging from chemicals to auto parts. Trump will probably continue to make adjustments going forward, but they are likely to be smaller in scale.

With the final version of tariffs mostly in place, markets are now watching for their delayed effects on the economy. Signs are becoming clearer in inflation data across CPI, PPI, and PCE. Core CPI has risen above 3% and core PCE is closing in. Supercore PCE, which excludes shelter, fuel, and food, rose to 3.32% in the July data. 

Inflation expectations are also picking up, not just in the disputed Michigan survey but across most metrics. The 2-year breakeven has reached 2.8%, with longer-term breakevens slowly following. September’s CPI report will be important just days before the FOMC meeting. An upside surprise could have an outsized impact on expectations and put the Fed in a difficult position. 

Despite tariff effects and rising inflation, the main market driver was the latest jobs data. Nonfarm payrolls increased by 73k, but more importantly, large downward revisions to May and July pushed the three-month average down to 35k. 

The real weakness has been hidden in the participation rate. Unemployment has held steady at 4.2% for the past year, but participation fell to 62.2% from 62.7% over the same period, and the decline appears to be accelerating. Powell described this as a “new curious balance,” where both supply and demand have fallen at the same time, but he sees this as riskier. 

Both inflation and employment risks are tilted to the upside, which suggests stagflationary pressure (though not stagflation itself) is at play. Until now, labor market risks looked limited, with only minor signals of weakness. But the rising risks have shifted the Fed’s focus. As Powell said in his Jackson Hole speech, “shifting balance of risks may warrant adjusting our policy stance,” a clear sign that cuts are likely soon, most likely begin September. However, this does not mean sharp or rapid cuts are coming yet. 

Although widely seen as dovish, Powell’s Jackson Hole speech was actually hawkish in the longer-term perspective. The Fed will end the framework introduced during Covid, which allowed higher inflation in order to offset years of undershooting. From the 2008 financial crisis until Covid in 2020, core PCE averaged 1.52%, well below the 2% target. That gave the Fed the chance to adopt FAIT (Flexible Average Inflation Targeting), which let inflation overshoot temporarily while focusing more on the labor market. 

Post-Covid, however, core PCE has averaged 3.43% amid unprecedented fiscal stimulus worldwide. The Fed is now ending FAIT, meaning that as long as unemployment risks remain under control, inflation will not be allowed to run far above target. In practice, the Fed had already been behaving this way, keeping rates well above inflation, but now it is formal. 

Another key issue is Fed independence. After Kugler’s early departure, Trump moved to appoint Miran as a temporary member, with Senate confirmation expected before next FOMC meeting. With Waller and Bowman leaning dovish, Trump is seeking more control. His next target is Lisa Cook, who reportedly listed two different properties as her residence on a mortgage application. Whether this was an error or misconduct is debatable, but Trump wants to use it to remove Cook, a hawk, and replace her with a loyalist. He also aims to pressure Powell to step down from his board seat after his term, using the vacancy to gain further influence. 

The Fed has 12 voting members: 7 appointed by the Senate, the New York Fed president, and 4 rotating regional presidents. Even if Trump captured Cook and Powell’s seats, it might not be enough, which is why reports suggest he is exploring ways to gain more control over regional Feds. Such moves to limit Fed independence could be major market drivers in the coming months, potentially creating upward pressure on gold and downward pressure on equities. 

Another key event in September is France’s confidence vote. The country remains mired in political risk and budget struggles. The minority government has been trying to cut the deficit to avoid fiscal collapse, but hard to accept proposals such as taxing pensioners and cutting public holidays have met with strong opposition from nearly every side. 

Prime Minister Bayrou unexpectedly called a confidence vote and now risks losing the government. Surveys show the public favors reelection, but Macron has ruled that out, saying he will serve until the end of his term. That means Macron must choose a new prime minister candidate and attempt to form another minority government. This ongoing political drama delays any meaningful budget action to reduce the deficit. If it drags on, the euro could face significant downward pressure over the medium term. For now, forex market are in wait-and-see mode with France yields trending. The confidence vote will take place on September 8. 

PMIs show that the US is expanding at a fast pace, though the spread between ISM and PMI makes it harder to judge which data to prioritize. The rollback of April tariffs has given businesses some optimism, but the test will be whether sentiment holds through year-end. 

In the UK, inflation is running hot. Both GDP and inflation data recently came in stronger than expected. 

In the Eurozone, PMIs have stayed above 50 all year, pointing to slow but steady growth. Rate cuts could provide further support, and securing the trade deal should help maintain momentum. The ECB also appears to be at or near the end of its rate-cutting cycle. 

Central Bank Meeting Calendar 

Technical View 

The main theme for the US 10-year government bond yield has not changed. The flat movement between 4.10 and 4.70 continues, and yields appear to be contracting even further each month. The “Genius Act” opened the door for stablecoins, which is expected to increase investment in US debt over the coming years, creating additional downward pressure alongside Fed cut expectations. However, if threats to Fed independence intensify, the slightly bullish outlook for bonds could quickly fade. 

Brent crude oil is holding steady as the global economy remains in decent shape despite rising US tariffs. Trump’s efforts to end the Russia–Ukraine war are not yielding results, which provides oil with another reason to remain supported. Both factors could change quickly, however, so the long-term downtrend channel from 2022 is still intact. 

Precious metals rallied in August on rising risks, Powell’s Jackson Hole speech, and bullish technical signals. Silver led with an 8.18% return, followed by platinum with 6.1%. Platinum continues to benefit from long-term bullish expectations tied to the growing hydrogen economy. Palladium, however, diverged negatively again, as it has in many months over the past year. Demand remains weak, particularly given that the supply issues with Russia, the largest producer, are still unresolved. 

Gold is testing the 3450 resistance level at the end of August. The technical outlook can be interpreted in two ways. The first is a rising triangle, where upward pressure is building and a breakout is near. The second is a retest of the previously broken blue trendline, which could signal a sharp retreat. In either case, the 3450 and possibly 3500 levels will be critical. A breakout above both would support the bullish triangle scenario. 

Silver, like gold, is at a key moment. Price is currently near both the short- and long-term upper trendlines (39.95 and 40.36) while retesting a previously broken line. Holding above 40 could trigger a major breakout, but resistance is likely to remain strong. If no breakout occurs, silver could retreat toward the low 37 range within the month. 

The Dollar Index ended its sharp downtrend in July and twice tested the long-term trendline from 2011(white trendline at the bottom). In August, the dollar traded sideways without clear direction. The long-term trendline appears intact, but the 100-day moving average has not yet been reclaimed. If the dollar manages to retake the average, a medium-term upside trend could form. Conversely, a downside break could have lasting negative implications. 

Global equities were mostly positive on rising rate-cut hopes. The MSCI World Index gained 2.49% in August. In the US, the Dow led, supported by Trump’s push for increased manufacturing investment. In contrast, the usual leader Nasdaq was more subdued, with tech valuations seen as stretched. European markets struggled due to political risks in France and a stronger EURUSD weighing on equities. 

Despite risks and elevated valuations, the VIX traded below its one-year average for most of August. Seasonality is a concern: September has historically been negative for the S&P 500, with an average return of -1.96% over the last ten years and -0.81% over the last thirty years. Still, rate-cut expectations are keeping markets supported and driving increased short positioning in the VIX. 

The S&P 500 is hugging its broken trendline, with upward moves continuing to weaken even as bullish bets persist. For the first week of September, 6550 and 6415 will be the key support and resistance levels to watch for a breakout. 

In August, most major FX pairs traded within a -1% to +1% range. The dollar index could not find direction and remained flat. The Swiss franc underperformed, pressured by the higher-than-expected US tariffs. 

EURUSD broke out of its rising trend in July and spent August trading sideways, trying to establish a new direction. The setup can be read in two ways: either as an extended flag formation or as a triangle pattern from the May bottom. In either case, a breakout above the descending trendline from the July top could trigger bullish pressure, while a move below 1.15 could bring EURUSD bears back into play. 

USDJPY changed very little in August, continuing to hover just below the 200-day moving average and the 38.2% retracement level. The pair remains confined to a narrow portion of the rising trend channel. Levels to watch are 144.60 on the downside and the 200-day moving average on the upside, either of which could spark significant volatility.