As the government shutdown enters the 22nd day, the Federal Reserve is navigating uncharted territory, with a critical meeting looming and economic data shrouded in uncertainty. In this environment, one thing is clear: the central bank’s next move will be crucial.
Notably, the central bank is likely to adopt a more dovish stance amid the ongoing government shutdown, with the Fed rate cut becoming increasingly probable. The likelihood of a 50-basis-point rate reduction by year-end is gaining traction. Given the labor market’s rapid decline, the bank is under pressure to act swiftly to avoid falling further behind the curve.
Govt Shutdown Continues: Is a Fed Rate Cut Possible?
In a recent X post, The Kobeissi Letter shed light on the prevailing US govt shutdown and its possible implications for the Fed rate cut decision.
Significantly, the ongoing govt shutdown, which is now in its 22nd day, has halted key economic data, including the jobs report. Without the September jobs report, policymakers are operating in the dark, facing a dilemma between addressing sluggish hiring and combating persistent inflation.
In addition, the worsening economic conditions have also ignited caution. Reportedly, the US national debt has accelerated to a staggering $38 trillion, further escalated by the government closure.
While the central bank is heading into its next policy meeting with a clouded view of the economy, the community is eagerly awaiting the central bank’s next move. Amidst this uncertainty, The Kobeissi Letter has provided a clear picture, sparking widespread optimism. Although the bank is facing a challenging decision-making process, the Fed rate cut is highly likely, said the commentator. They wrote,
“On top of this, the Fed has lost access to key private jobs data from ADP, covering 20% of private workers. So, what does it all mean?…MUST lean even more dovish as the government shutdown continues, and they MUST cut rates. In fact, odds of a 50 basis point…by year-end are surging. As the labor market rapidly deteriorates…simply cannot afford falling behind the 8-ball.”
According to a Reuters report, Nomura’s chief economist, David Seiff, posited that the officials and economists are “just flying blind.” He added, “The big question mark right now is what is going on in the labor market, and we cannot know that until we see the report.”
Fed Rate Cut Odds Surge
Despite this ambiguity, the Fed rate cut odds on Polymarket are increasing. “Particularly, the chances of a reduction by 75 basis points have reached 80%, while 25 and 50 basis point cuts are lagging behind.
At the same time, a Reuters poll indicates the Federal Reserve will lower its key interest by 25 basis points next week and again in December. This forecast reflects a shift from a month ago, when economists anticipated only one reduction, as policymakers have signaled that further reductions are likely. Economists remain divided on the rate’s trajectory by year-end.
