October 08, 2025
Market Review and Q4 Outlook 2025
The Fed’s Independence Is Gone: Short-Term Gains, Long-Term Pains
For much of the past three decades, markets operated under the assumption that monetary policy was largely independent of government influence. Even during extraordinary times—the Global Financial Crisis, the European debt crisis, and the COVID-19 pandemic—central banks coordinated with governments but ultimately acted under their own mandates. That independence gave investors confidence: once they built models for growth and inflation, they could compare their views with central bank frameworks and position accordingly.
This framework is now under strain. President Trump has reshaped the Fed’s Board of Governors, tilting it toward members aligned with his view that rates should be materially lower. With U.S. employment data softening, the Fed cut rates in September and is expected to cut twice more before year-end. From a purely economic standpoint, these moves are defensible and did not require any political interference. They are also likely to support equities in the near term.
However, the longer-term implications are more concerning. Inflation, while subdued, has not fully returned to target in most developed economies. Once rate cuts filter through and growth reaccelerates, inflationary pressures are likely to resurface. At that point, the Fed should raise rates, but political pressure may keep policy looser than warranted. The result could be higher long-term yields, unanchored inflation expectations, and a significantly more volatile environment for risky assets.
In the meantime, we remain constructive on markets. Rate cuts, combined with a powerful wave of AI-driven capital expenditure, should continue to support equities into year-end. Yet the seeds of a more challenging backdrop have been planted. By the second half of 2026, we expect the tension between what the Fed should do and what it will do to emerge as a defining challenge for markets.
In short: investors can enjoy the near-term gains but should recognize they will likely come at the cost of longer-term pain.
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About the Author
As President and Chief Investment Officer, Mr. Lewis leads CI Global Asset Management and oversees the continued development of the firm’s integrated global investment platform.
Mr. Lewis has over 20 years of global investing experience and has held senior leadership positions at several organizations, including two of the world’s largest institutional investors. His diverse experience spans asset allocation, portfolio construction, risk management, public and private markets, and fundamental and quantitative strategies.
Prior to joining CI GAM in September 2021, Mr. Lewis was Head of Portfolio Construction at the Abu Dhabi Investment Authority (ADIA), one of the world’s largest sovereign wealth funds. His responsibilities included strategic asset allocation, quantitative research and alternative indexing activities, as well as sitting on the executive and tactical asset allocation committees for its Strategy and Planning Department.
Prior to ADIA, Mr. Lewis was Senior Vice-President and Deputy Chief Risk Officer at Caisse de dépôt et placement du Québec (CDPQ), where he led a team that analyzed and monitored the risks of both public and private investments in the CDPQ portfolio. He was also a member of the CDPQ asset allocation committee. Mr. Lewis’s previous positions also included Senior Vice-President, Risk Management – Fixed Income and Overlay Strategies at CDPQ and Senior Vice-President, Fixed Income at Natcan Investment Management, where he oversaw a team managing $16 billion in Canadian and global fixed-income assets.
He holds a PhD in theoretical physics from Pierre and Marie Curie University (now Sorbonne University), and an M.Sc. in theoretical physics and a B.Sc. in mathematics and physics from Université de Montréal.
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This document is provided as a general source of information and should not be considered personal, legal, accounting, tax or investment advice, or construed as an endorsement or recommendation of any entity or security discussed. Every effort has been made to ensure that the material contained in this document is accurate at the time of publication. Market conditions may change which may impact the information contained in this document. All charts and illustrations in this document are for illustrative purposes only. They are not intended to predict or project investment results. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. Investors should consult their professional advisors prior to implementing any changes to their investment strategies.
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