Monthly market roundup: A balance amid uncertainty

Monthly roundup from TIAA Wealth Management’s Office of the CIO – October 2025

“A curious kind of balance” was how Federal Reserve Chair Jerome Powell described the job market in August. According to October’s CIO Perspectives, Powell could just as easily have been describing the current state of the stock market and economy. And in another new report, TIAA Wealth Management’s CIO team examines what it means if the Fed keeps cutting interest rates at a time when inflation is actually ticking up.

Here are highlights from our investment team’s latest research:

Market arrows pointing up

A myriad of competing influences—tariffs, interest rates, immigration policy, capital spending, consumer confidence, tax cuts, and more—are pushing and pulling on the economy. For now, it’s all balancing out, TIAA Wealth Management Chief Investment Officer Niladri “Neel” Mukherjee writes in October’s CIO Perspectives. The economy is growing, and the stock and bond markets have been posting solid returns.

But what happens next? The range of possible outcomes is wide, which is why Mukherjee’s team continues to focus on diversification as a key pillar of their investment philosophy. “That said,” he writes, “we do lean positive. We anticipate strength in business spending in 2026, which would bode well for the economy and for investors.”

Some factors underlying Mukherjee’s optimism:

• Provisions in the One Big Beautiful Bill Act (OBBBA) should accelerate business spending, particularly investments in artificial intelligence (AI) and other technologies.
• Also related to OBBBA, a wave of larger tax refunds in April 2026 could provide a short-term boost in spending.
• Growing adoption of AI by businesses could boost productivity growth.
• The Fed’s decision to resume interest rate cuts could provide additional economic support by lowering borrowing costs and lifting asset prices.

Inflation: Is 3% the new 2%?

The Federal Reserve has a dual mandate of stable prices and full employment. For more than a decade, the Fed’s definition of stable prices included a target inflation rate of 2%. However, the CIO team has been highlighting whether the Fed may now be accepting a higher inflation rate, possibly in the 2.5% to 3% range. If so, the Fed might prioritize the labor market and execute on more rate cuts.

The team writes in a new FocusPoint report, “Our view is that, given the multitude of dynamics at play keeping inflation structurally higher, an implicit acceptance of above-target inflation could be settling in among policymakers.”

Those dynamics include rising tariffs (which have increased the cost of goods), crackdowns on immigration (which have shrunk the labor supply), and the “incessant thirst” for AI computing power (which since 2020 has driven up electricity prices 35% versus 23% for the Consumer Price Index).

If 3% really is the new 2% when it comes to inflation, this has important implications for bond investors. Since inflation reduces the value of future interest payments, investors will likely require higher interest rates from long-term bonds. “We believe,” the CIO team writes, “the longer inflation deviates from 2%, the higher the risk that 3% might be viewed as a more realistic (albeit unofficial) inflation target by market participants, resulting in further increases in the term premium.”¹

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