US Equity Funds See Sharp Decline in Inflows; Federal Reserve Cuts Rates Again

In the week ending October 29, 2025, U.S. equity fund inflows declined sharply to $1.81 billion, a significant drop from the previous week's $9.65 billion. This downturn reflects investor caution ahead of the Federal Reserve's interest rate decision and earnings reports from major technology companies.

On October 29, the Federal Reserve reduced its benchmark interest rate by 0.25 percentage points, setting the federal funds rate target range to 3.75%–4.00%. This move marked the second rate cut of the year, following a similar reduction in September. The decision was influenced by concerns over a softening labor market and persistent, though moderating, inflationary pressures. Federal Reserve Chair Jerome Powell emphasized that future rate cuts are not guaranteed, highlighting divisions among Fed officials and the challenges posed by limited economic data due to an ongoing government shutdown. Powell noted signs of easing inflation in certain sectors, such as rents and services, but also acknowledged recent corporate layoffs and weakening hiring data as concerns for the labor market.

During this period, large-cap equity funds attracted $1.57 billion in inflows, while mid-cap and small-cap funds experienced outflows of $1.65 billion and $1.44 billion, respectively. Notably, technology sector funds saw a net inflow of $1.65 billion, the largest since October 1, 2025. In contrast, financials and consumer discretionary sectors faced outflows of $662 million and $314 million, respectively.

Bond funds continued to gain favor, with net inflows of $4.91 billion, marking the fourth consecutive week of positive movement. Money market funds also experienced net inflows of $1.46 billion for the second week in a row.

The Federal Reserve's rate cut and cautious outlook led to mixed reactions in financial markets. While some investors welcomed the reduction, others remained concerned about the potential for future cuts and the overall economic outlook. The yield on the 10-year U.S. Treasury note, which heavily influences mortgage rates, declined to near its lowest point since April, reflecting market expectations of continued monetary easing.

Additionally, the interest rate on the widely-used 30-year fixed-rate U.S. mortgage decreased to 6.30%, the lowest level in 13 months, according to the Mortgage Bankers Association. This drop follows a lower-than-expected inflation report, reinforcing expectations of another interest rate cut by the Federal Reserve.

The decline in equity fund inflows and the shift towards bond and money market funds suggest a growing investor preference for safer assets amid economic uncertainty. This behavior reflects concerns over the labor market, inflation, and the Federal Reserve's monetary policy trajectory. The rate cut aims to stimulate economic growth and support employment, but the cautious stance on future cuts indicates the Fed's balancing act between fostering growth and controlling inflation.

The recent trends in fund flows and the Federal Reserve's monetary policy decisions reflect the complex interplay between investor sentiment, economic indicators, and policy actions. As the economic landscape continues to evolve, stakeholders will closely monitor these dynamics to inform their strategies and expectations.