Fed Policy Division and Credit Market Resilience: Bloomberg Real Yield Analysis

This analysis is based on the Bloomberg Television “Real Yield” program [1] aired on November 7, 2025, featuring discussions with prominent financial experts about Federal Reserve policy divisions and credit market concerns.

The Federal Reserve’s internal division has intensified following the October 29, 2025 FOMC meeting, where policymakers voted 10-2 to cut rates by a quarter percentage point to the 3.75%-4.00% range [2]. This marked only the third time since 1990 that officials dissented in different policy directions - with Fed Governor Stephen Miran calling for a deeper cut and Kansas City Fed President Jeffrey Schmid opposing any cut due to ongoing inflation concerns [2].

Fed Chair Jerome Powell acknowledged “strongly differing views” about the appropriate path forward, stating that “a further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it, policy is not on a preset course” [2]. Market participants responded by reducing bets on another December rate cut, with odds falling to roughly two-to-one against [2].

Despite policy uncertainties, major equity indices demonstrated resilience on November 7, 2025:

• S&P 500
  : Closed at 6,705.77 (+0.14%) [0]
• NASDAQ Composite
  : Closed at 22,894.97 (+0.01%) [0]
• Dow Jones Industrial Average
  : Closed at 46,903.57 (+0.23%) [0]

However, the broader trend shows some weakness, with the S&P 500 down approximately 2.5% from its October peak of 6,882.32 [0]. Financial services emerged as the strongest performer, gaining 1.43% [0], while technology stocks lagged with a 0.90% decline [0]. Utilities surprisingly led with a 2.43% gain [0], potentially reflecting defensive positioning.

Despite recent credit market “cockroaches” - including issues at BlackRock-owned HPS Investment Partners and alleged loan fraud at regional banks like Zions Bancorp and Western Alliance Bancorp - fundamental credit metrics remain relatively healthy [3]:

• Median net charge-offs
  for the 50 banks in the KBW Regional Banking index stood at only 0.04% in Q3 2025, compared to 0.31% during the 2008 financial crisis peak [3]
• Provision for loan losses
  remains 62% below its 2020 pandemic peak and 80% below its 2009 financial crisis peak [3]
• Financial sector valuations
  appear attractive at 15.9 times forward earnings, the second cheapest among S&P 500 sectors versus the broader index’s 22.9 multiple [3]

The ongoing federal government shutdown has created significant data gaps, with the Fed acknowledging they lack key employment and inflation reports. Powell described the situation as “driving in fog,” noting that “you slow down” when visibility is limited [2]. The Fed has been forced to rely on private data sources, in-house surveys, and informal business contacts to gauge economic conditions [2].

There appears to be a disconnect between headline credit concerns and underlying market fundamentals. While investors are “spotting credit cockroaches,” comprehensive data suggests these may be idiosyncratic issues rather than systemic problems [3]. The financial sector’s strong earnings performance and relatively healthy loan metrics support this view, with third-quarter earnings from S&P 500 financial companies showing the highest percentage of companies expanding margins year-over-year [3].

The $1.1 trillion US private credit market presents monitoring challenges due to limited transparency [3]. While current metrics appear healthy, the rapid growth of this less-regulated segment creates potential blind spots for systemic risk assessment.

1. Government Shutdown Duration
   : Extended data deprivation could force the Fed into more cautious policy decisions, potentially delaying needed rate cuts [2].

2. Credit Market Contagion
   : While current metrics appear healthy, the rapid growth of private credit markets ($1.1 trillion) presents monitoring challenges [3].

3. Fed Policy Miscalculation
   : The division within the FOMC increases the risk of policy errors given limited data visibility [2].

1. Fed Financial Stability Report
   (November 8): Expected to provide insights into credit market opacity and systemic risks [3]

2. Government Shutdown Resolution
   : Restoration of official economic data streams will be crucial for informed policy decisions [2]

3. Financial Sector Earnings
   : Continued strength in bank earnings and loan quality metrics would support the view that credit concerns are contained [3]

4. Private Credit Market Developments
   : Monitoring for any signs of stress in the less-transparent private credit market [3]

The current market environment reflects a complex interplay between Fed policy uncertainty, credit market concerns, and data deprivation. While equity markets have shown resilience, particularly in the financial sector, the combination of internal Fed division and government shutdown-induced data gaps creates significant uncertainty. Credit market fundamentals appear healthy based on available metrics, though the lack of transparency in private credit markets warrants ongoing monitoring. The Fed’s acknowledgment of “driving in fog” [2] underscores the challenging decision-making environment facing policymakers and market participants alike.