The U.S. government shutdown has thrown a wrench into the release of key economic data—think jobs reports and inflation numbers—but according to Morgan Stanley, that won’t stop the Federal Reserve from cutting interest rates again this month.
Shutdown or Not, the Fed Marches On
In a note to clients, Morgan Stanley economists argued that the Fed has already seen enough evidence to justify another 25 basis point cut at the upcoming meeting. "If downside risks to September employment were significant enough to prompt a recalibration of the Fed’s policy stance, and that remains unchanged, the accommodative bias remains," they wrote. Translation: the Fed’s leaning dovish, and the shutdown isn’t changing that.
The bank expects another cut in December, with the federal funds rate projected to fall into the 2.75%–3.0% range by mid-2026.
Powell and Waller Stay Confident
Despite the data blackout, Fed officials aren’t exactly flying blind. Chairman Jerome Powell said last week that "the outlook for employment and inflation has not changed significantly from our September meeting four weeks ago." Governor Christopher Waller has echoed similar confidence, suggesting the Fed’s internal read on the economy hasn’t shifted much.
Morgan Stanley’s analysts added that labor market weakness remains one of the key downside risks, reinforcing the case for more easing.
Why the Fed Isn’t Sweating the Missing Data
Normally, the Fed leans heavily on monthly data releases to fine-tune its policy stance. But this time, Morgan Stanley argues, the central bank already has enough summer evidence to conclude that policy is "too tight." In other words, the Fed doesn’t need fresh spreadsheets to know the economy could use a little more breathing room.
That’s why the shutdown, while inconvenient for economists and traders, isn’t expected to derail the Fed’s plans.
Market Implications
For investors, the takeaway is straightforward: the Fed is still on track to cut rates, even if Washington can’t get its act together. That could mean:
- Lower borrowing costs for businesses and consumers heading into year-end.
- A potential boost for equities, especially rate-sensitive sectors like housing and tech.
- Continued pressure on the U.S. dollar, which has already been wobbling as markets price in more easing.
Of course, the risk is that without fresh data, the Fed could be steering partly by rearview mirror. If inflation flares up again or the labor market surprises to the upside, the central bank might find itself second-guessing these cuts down the road.
The Bottom Line
The government shutdown may have silenced the usual flow of economic stats, but it hasn’t silenced the Fed. Morgan Stanley is betting on another rate cut this month, with more easing to follow in December. For Wall Street, that means the focus isn’t on missing data—it’s on how far Powell and company are willing to go to keep the economy humming.