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Investing.com--The U.S. government shutdown has turned off the flow or delayed key economic readings on jobs and inflation, but that isn’t likely to stop the Federal Reserve from cutting rates again later this month, Morgan Stanley economists said in a recent note.
"[If] downside risk to employment warranted a recalibration of the Fed’s policy stance in September, and conditions have not changed, then the easing bias remains in place...we should expect another step down in the policy rate this month," the economists.
Fed officials, including Chair Jerome Powell and Governor Christopher Waller, meanwhile, continued to signal confidence in their assessment of the economy despite the missing numbers caused by Washington’s shutdown.
Powell said last week that “the outlook for employment and inflation does not appear to have changed much since our September meeting four weeeks ago,” the economists added, citing still-soft labor conditions as a reason for ongoing downside risk.
The bank expects the Fed to deliver another 25 basis-point cut this month followed by another in December, taking the fed funds rate down to a range of 2.75% to 3.0% by mid-2026.
Even without the granular readings normally guiding monetary policy, Morgan Stanley concludes that the Fed “saw enough over the summer to be convinced its stance was overly restrictive,” Morgan Stanley suggested, implying that no amount of missing data will derail its next move,