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Investing.com -- The Federal Reserve is still likely to cut interest rates next week despite the lack of official data due to the government shutdown, according to Capital Economics’ North America economist Bradley Saunders.
“The weakness in various labor market indicators suggests the FOMC will vote for another 25bp cut next week, lowering the fed funds target range to between 3.75% and 4.00%,” Saunders wrote, adding that “downside risks to the labor market remain elevated.”
The firm said the Fed will rely on “alternative indicators to gauge labor market conditions,” which generally show that “the recent pace of job creation appears to be running below the ‘breakeven’ rate needed to hold the unemployment rate constant.”
Capital Economics noted that ADP data reported a broad-based 32,000 decline in private payrolls in September and that “the Chicago Fed’s real-time unemployment rate forecast sat at 4.34% last month.”
They note that Chair Jerome Powell acknowledged much of this in a speech last week, when he said that “the outlook for employment and inflation does not appear to have changed much since the September meeting.”
As a result, Capital Economics said, “another rate cut looks certain next week.”
Still, the pace of further easing may slow. “The threat of broader inflationary pressures from tariffs and a solid economy means easing at future meetings is not a given,” the analyst said, adding that “a hold in December is the more likely option.”
Fed governor Stephen Miran, meanwhile, “is set to be a lone wolf again” in calling for a larger 50bp cut, Capital Economics wrote.