Recently, Morgan Stanley Economists noted in the report that while the shutdown of the U.S. federal government has disrupted or delayed the release of key economic data on employment and inflation, it is unlikely to prevent the Federal Reserve from cutting interest rates again later this month.
The US government shutdown couldn't stop the pace of interest rate cuts.
The U.S. federal government has been shut down for three weeks since the beginning of October. On October 20, Eastern Time, the U.S. Senate voted on the government funding bill for the 11th time, but it failed to pass, meaning the shutdown will continue.
The US government shutdown not only affected American Airlines The disruption to transportation and public services has impacted people's daily lives and caused delays in the release of various economic data, making it more difficult for Federal Reserve officials to assess the state of the U.S. economy.
However, Morgan Stanley economists believe that the extent of the lack of U.S. economic data will not affect the Federal Reserve's next move, namely further interest rate cuts.
They wrote in the report:
"If headwinds on the employment front require a readjustment of the Fed's policy stance in September, and the current situation remains unchanged, then the accommodative policy bias will remain unchanged... We expect the policy rate to be lowered further this month."
Meanwhile, Federal Reserve officials, including Chairman Jerome Powell and Federal Reserve Governor Christopher Waller, have recently continued to express confidence in their assessment of the state of the U.S. economy, despite the data gaps caused by the federal government shutdown.
Morgan Stanley economists added that Powell stated last week, "The outlook for employment and inflation does not appear to have changed much since our meeting four weeks ago in September," which also suggests that the Fed's path of interest rate cuts will continue.
Morgan Stanley also pointed out that the continued weakness in the U.S. labor market is a major reason why the Federal Reserve is expected to continue cutting interest rates.
Is a 50 basis point interest rate cut this year a certainty?
The Federal Reserve will hold its Federal Open Market Committee (FOMC) meeting on October 28-29. According to the CME FedWatch tool, the probability of a 25 basis point rate cut in October is as high as 99.4%, and the probability of a cumulative 50 basis point rate cut by December is 98.6%.
Morgan Stanley made the same prediction, that the Federal Reserve will cut interest rates by 25 basis points this month, followed by another 25 basis point cut in December.
Morgan Stanley also predicts that the federal funds rate will fall to the range of 2.75% to 3.0% by mid-2026.
Even without considering the detailed data that is usually used as a guide for monetary policy, Morgan Stanley concluded that the Federal Reserve "saw enough during the summer to be convinced that its policy stance was too tight."
(Article source: CLS)
