Inflation data beats expectations as Fed prepares for October 28-29 meeting; private credit debates exposure in high-profile bankruptcies
The week ending October 26, 2025, brought middle market lenders welcome relief on the inflation front amid an otherwise information-starved landscape. On Friday, October 24, the Bureau of Labor Statistics released September’s consumer price index—the only official government economic data published during the ongoing federal shutdown—showing inflation rose 3.0% year-over-year and 0.3% month-over-month, both below economist expectations.[^1] Core CPI, which excludes volatile food and energy, increased just 0.2% monthly, the slowest pace in three months.[^2]
Markets rallied sharply on the better-than-expected data, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all hitting record highs on Friday.[^3] The softer inflation print solidified market expectations for another quarter-point Federal Reserve rate cut at the October 28-29 FOMC meeting, with futures traders pricing in a 98.3% probability of a reduction that would bring the fed funds rate to 3.75%-4.00%.[^4]
The September CPI release proved particularly significant given the data blackout imposed by the government shutdown, which began October 1 and has suspended release of employment reports, GDP estimates, and other key economic indicators. The White House indicated Friday that the October inflation report likely will not be released at all, further complicating the Fed’s decision-making process for its December meeting.[^5]
Fed Faces October Decision With Limited Data Visibility
The Federal Reserve enters its October 28-29 meeting navigating conflicting pressures and incomplete information. While the September CPI provided some clarity on inflation, policymakers lack current employment data that would typically inform their assessment of labor market conditions—a key component of the Fed’s dual mandate.
Internal divisions within the Fed emerged publicly during the week preceding the meeting. In statements made October 16, Fed Governor Stephen Miran reiterated his preference for a half-point rate cut, citing concerns about the weakening labor market and heightened geopolitical tensions between the U.S. and China.[^6] Governor Christopher Waller countered with support for a more measured quarter-point reduction, a position that appears more aligned with the broader committee consensus.^7
“It would be really helpful to have the economic data in order to be able to make the decisions we need to make,” Miran acknowledged in his October 16 speech. “Certainly, we would want to be inspecting the economy for signs of moves lower in inflation, for signs of changes in the job market. But without those data, we still have to make a decision anyway, and so we’ll have to rely upon our forecasts for doing so.”^8
The September FOMC minutes, released October 8, revealed a committee “expressing a range of views about the degree to which the current stance of monetary policy was restrictive.”[^9] Most officials indicated support for continued easing, though the exact pace remains contested. The October meeting will not include updated economic projections or a press conference from Chair Jerome Powell, placing heightened importance on the policy statement language for market participants seeking guidance on the Fed’s future path.
Private Credit Industry Pushes Back on Bankruptcy Exposure Concerns
The middle market lending sector engaged in vigorous debate this week over whether recent high-profile bankruptcies signal broader systemic risks in the $3 trillion private credit market. An October 20 Fortune article examined mounting concerns following several prominent failures, including the September bankruptcy of auto parts supplier First Brands, which disclosed over $11 billion in liabilities.[^10]
However, private credit executives and rating agencies forcefully contested characterizations that these failures represent problems within the direct lending market. Bill Cox, chief rating officer at Kroll Bond Rating Agency, told Fortune that First Brands “would not have been considered in any way, shape, or form a private credit transaction” by his firm’s standards. “Its main debt was full-on public, broadly syndicated loans,” Cox explained.^11
Brian Garfield, who heads U.S. portfolio valuation at Lincoln International, echoed this distinction. “First Brands [largely had BSL facilities, and] that’s not the direct lending market,” he told Fortune. “I think it’s important that we understand that alone in itself is really important, because there’s this whole combination of things that everyone is just putting … in one basket.”^12
The debate highlights competitive tensions between traditional banks and private credit disruptors, with some observers suggesting the conflation of BSL and direct lending failures serves banks’ strategic interests. Nevertheless, Lincoln International’s proprietary data shows middle market credit conditions have tightened. Covenant defaults—technical breaches of loan terms rather than payment failures—have risen from 2.2% in 2024 to 3.5% currently. Payment-in-kind (PIK) usage increased from 6.5% of deals in Q4 2021 to 11% today, with “bad PIKs” (repriced mid-deal) rising from 33% to over 50% of that total.^13
Multiple Bloomberg articles published October 20 detailed the complex First Brands situation, including revelations that Banco Santander had signed an engagement letter to work with Jefferies on a refinancing effort before investors requested quality of earnings reports and information about off-balance-sheet borrowing.[^14] First Eagle’s alternative credit platform Napier Park Global Capital filed notice seeking to reclaim goods sold to First Brands during the 45-day period prior to bankruptcy filing, asserting the company “was believed to be insolvent when it received the reclaimed goods.”[^15]
M&A Activity and Strategic Positioning
Middle market M&A activity showed resilience during the week of October 13-19, with global M&A recording 576 announced deals valued at $106.02 billion, up 78% from the prior week’s $59.48 billion aggregate value.[^16] The increase reflected several large-cap transactions, including Brookfield’s announcement that it will acquire the remaining 26% stake in Oaktree Capital Management it does not already own for approximately $3 billion, giving it full ownership of the credit specialist.^17
On October 23, Bloomberg reported that equity markets approached all-time highs as the White House announced President Donald Trump will meet Chinese President Xi Jinping on October 30, cooling trade tensions ahead of the inflation reading.[^18] The S&P 500 rallied on big tech gains while energy shares surged after the U.S. announced sanctions on Russia’s largest oil companies.
The current federal funds rate stands at 4.00%-4.25% following the Fed’s September 17 quarter-point cut, with the effective rate hovering near 4.09%. Market analysts anticipate the rate could reach 3.50%-3.75% by year-end 2025 if the Fed continues its easing trajectory.[^19]
Strategic Implications for Middle Market Lenders
The week’s developments underscore several key considerations for middle market finance professionals navigating the remainder of 2025. First, the data vacuum created by the government shutdown forces greater reliance on alternative indicators, including private sector employment data, company-specific performance metrics, and industry surveys. Lenders should expect this information asymmetry to persist through at least early November, with potential implications for credit decision-making and portfolio monitoring.
Second, the private credit industry’s forceful response to conflation with BSL failures reflects concerns about reputational risk as the sector approaches $3 trillion in assets. While industry executives make valid distinctions between direct lending and syndicated loan structures, the rise in covenant defaults and PIK usage documented by Lincoln International suggests genuine credit stress exists within middle market portfolios, even if not manifesting as payment defaults.
Third, the Fed’s anticipated quarter-point cut on Wednesday, October 29, will bring the target range to its lowest level since late 2022, creating incrementally more favorable conditions for middle market borrowers seeking financing. However, the absence of a press conference or updated projections means market participants will parse the policy statement carefully for signals about the December meeting and early 2026 trajectory.
Finally, the resilience in M&A activity—despite economic uncertainty, geopolitical tensions, and the government shutdown—suggests middle market dealmaking retains momentum heading into year-end. The easing in U.S.-China tensions signaled by the planned October 30 meeting between Presidents Trump and Xi could provide additional tailwinds for cross-border transactions and businesses with international supply chains.
Middle market lenders should maintain disciplined underwriting while remaining positioned to capitalize on opportunities as they emerge, recognizing that visibility into economic conditions will remain limited until normal government data releases resume.
[^1]: U.S. Bureau of Labor Statistics, “Consumer Price Index Summary – September 2025,” October 24, 2025.
[^2]: Bloomberg, “US Core CPI Rises Less Than Expected in September,” October 24, 2025.
[^3]: CNN Business, “Latest inflation data shows prices rose by fastest pace since January,” October 24, 2025.
[^4]: Kiplinger, “October Fed Meeting: Live Updates and Commentary,” October 26, 2025.
[^5]: CNN Business, “Latest inflation data shows prices rose by fastest pace since January,” October 24, 2025.
[^6]: CNBC, “Fed Governor Miran wants a half-point cut this month, while Waller backs another quarter-point move,” October 16, 2025.
[^9]: CNBC, “Divided Fed officials saw another two interest rate cuts by the end of 2025, minutes show,” October 8, 2025.
[^10]: Fortune, “Wall Street might be panicking over private credit, but insiders can’t see what all the fuss is about,” October 20, 2025.
[^14]: Bloomberg, “Santander Lined Up to Help First Brands for Months Before Demise,” October 20, 2025.
[^15]: Bloomberg, “First Eagle’s Napier Park to Reclaim Goods Sold to First Brands,” October 20, 2025.
[^16]: Institute for Mergers, Acquisitions and Alliances, “M&A News: Global M&A Deals Week of Oct 13 to 19, 2025,” October 21, 2025.
[^18]: Bloomberg, “Stock Market Today: Dow, S&P Live Updates for October 23,” October 23, 2025.
[^19]: Norada Real Estate, “The Next Federal Reserve Meeting Preview: October 28-29,” October 24, 2025.
