This year, U.S. stocks have been driven by tech-led optimism, with the S&P 500 and Nasdaq indices climbing steadily on the back of AI-related stocks like Nvidia (NVDA), largely ignoring the negative impact of a potential U.S. government shutdown.

However, beneath this fervor, market anxiety is mounting over the next major macro event—the Federal Open Market Committee (FOMC) meeting in October. Scheduled for October 28-29 (ET), this meeting comes at a time when the Fed must formulate monetary policy without complete government data. This not only presents operational challenges but also raises a fundamental question: How should a central bank make decisions when "flying blind"?

This situation is not unprecedented. The longest U.S. government shutdown, lasting 35 days from late 2018 to early 2019, also delayed government data releases, forcing the Fed to rely on private-sector alternatives and market indicators.

But the stakes may be higher this time: The U.S. economy is slowing, fiscal policy is in disarray, and monetary policy is already tight. A misstep or wrong signal could disrupt markets, unnecessarily tighten financial conditions, or reignite inflation.

Current speculation around the Fed meeting largely centers on whether it will cut its key rate by 25 basis points. While market participants see this as the baseline scenario, the Fed’s wording and tone will be crucial.

If the Fed cuts rates but maintains hawkish rhetoric, markets could sell off. Stocks may initially rally on the rate cut, but concerns over persistent inflation could push real yields and the dollar higher, hurting growth stocks. Gold, which thrives on falling real yields, would decline, while high-beta stocks could see rapid margin unwinding.

Conversely, a 25-basis-point cut with dovish messaging could signal the start of an easing cycle. If Chair Jerome Powell and his team emphasize downside risks—such as labor market weakness or global economic slowdown—stocks would surge, the dollar would fall, gold would break out, and risk appetite for equities and cryptocurrencies would soar.

This "soft landing + liquidity easing" scenario is what market bulls are betting on.

A more aggressive move—a 50-basis-point cut—is possible but likely only if private data shows the economy deteriorating faster than expected or financial markets face severe stress. Such bold action would imply the Fed sees imminent recession or credit distortions. While risk assets (stocks, crypto, gold) could rally, it might also spark panic, as investors wonder what the Fed knows that they don’t.

Another under-discussed outcome: The Fed holds rates steady but issues dovish guidance—a classic "wait-and-see" approach, especially if delayed data makes immediate action unjustifiable. The Fed might say, "We’re not cutting now, but we’re ready if things worsen." Whether markets accept this hinges on the guidance’s credibility; if perceived as hesitation, volatility could spike.

The worst-case scenario: The Fed holds rates and sounds hawkish. If delayed inflation data remains high in the Fed’s alternative metrics, or if wage growth and housing inflation cool too slowly, such messaging would make sense. If Powell mentions "persistent inflation," "premature easing," or "too-loose financial conditions," markets would read it as "no cuts soon." The S&P 500 could plunge, the dollar would rise, gold would weaken, and leveraged trades would suffer.

The Fed’s words matter more than ever. With official unemployment, CPI, and wage data potentially missing, Powell may lean on "soft indicators" like ISM surveys, jobless claims, and market-based inflation expectations. But these proxies are often volatile and lagging. The risk? If Powell’s stance proves too cautious or aggressive relative to eventual data, market reactions could be extreme.

**Politics and Policy** Beyond policy necessity, politics is fueling market frenzy. The longer the shutdown lasts, the greater the economic friction—delayed federal paychecks, stalled contracts, and paused projects will eventually hit corporate earnings, consumer data, and sentiment.

In this tense environment, even a Fed rate cut may not soothe concerns. Investors must prepare for all outcomes, not just the expected one—tracking real yields, the VIX, and forex positions closely.

Gold remains a top hedge in asymmetric scenarios, especially if the Fed overcorrects or loses control of the narrative. Stock pickers should avoid chasing indices and focus on firms with pricing power, strong balance sheets, and low rate sensitivity.

The Fed’s job is never easy, but navigating the world’s largest economy without a full "dashboard" makes it exponentially harder. Markets hope for a soft landing—whether the Fed supports or shatters that hope hinges on what it says, not just what it does.