While there is a general consensus that the Federal Reserve will cut interest rates at its October meeting, any move that it makes will be done without the insight from the government data it usually has available.
U.S unemployment data, as well as repots on construction spending, retail sales, and producer prices have been on hold since the shutdown started at the end of last month.
The one exception is the Consumer Price Index, due to come out tomorrow. The Bureau of Labor Statistics, which issues the report, recalled some workers earlier this month to produce the numbers, cited the need for the report “to allow the Social Security Administration to meet statutory deadlines necessary to ensure the accurate and timely payment of benefits.”
Reading the Tea Leaves
“It’s almost a forgone conclusion that the Federal Reserve will deliver an additional 25 basis point rate cut at the next FOMC meeting,” said Mark Gibbens, president and chief investment officer of Gibbens Capital Management. “With the labor market softening, the Fed has room to ease policy further. Another reduction in the Fed funds rate should provide a tailwind as we head into the end of the year.”
After the expected cut of 25 basis points in October, Reuters economists expect another 25 basis point cut in December. There is no November meeting. However, during times of economic turmoil, it has made cuts outside of a regular meeting, such as March 3, 2020, in response to the Covid 19 pandemic, and on October 8, 2008, following the collapse of Lehman Brothers.
Reuters reported that Inflation, for which the Fed t 2% on has a 2% target, was expected to average above 2% each year through 2027. Tomorro’s CPI report is expected to show consumer inflation rose to 3.1% last month from 2.9% in August.
“The third quarter earnings picture is coming into focus, and broadly speaking, companies are beating expectations,” Gibbens added. “With corporate profits looking solid, this should sustain market optimism into the final months of 2025. It doesn’t hurt that GDP remains north of 3% either.” While Fed watchers are confident about two additional 25 basis point cut this year, the outlook for 2026 is much less certain, particularly with the lack of government reports, though there are non-government reports from ADP and some other sources that can provide some insight on the labor market and on other economic trends.
