Following the US budget crisis that has been talked about for days, the US federal government has officially shut down. As fiscal year 2025 draws to a close, no agreement has been reached on a budget to fund the federal government. As a result, the US federal government went into shutdown (temporary work stoppage) on the morning of October 1st, after the US Congress definitively rejected the budget deal. As a result, the publication of key economic indicators such as employment and Gross Domestic Product (GDP) data will be suspended. In the scenario where a temporary budget is not approved, the government will lose its spending authority and suspend all activities except essential services, and those not working within the scope of essential services will be placed on indefinite leave. As uncertainty persists in the US, anxiety surrounding the Fed's interest rate cuts has increased. The Fed, which bases its interest rate decisions on released economic data, will be unable to provide much important economic data. While there is curiosity about how the FED will act at this point, Citibank economists stated that they expect the FED to continue reducing interest rates for the rest of the year, despite the risk of being deprived of important economic data due to the government shutdown. At this point, Citi economists stated that the Fed will likely cut interest rates by 25 basis points in October and December, as indicated in the dot plot. The U.S. government shutdown could hinder key labor and inflation data, forcing investors to rely more on private sources like ADP, economists say. “The Fed may not have important reports on employment and inflation before the FOMC meeting on October 29th. At this point, investors and the Fed can take cues from less reliable private sector data, such as the ADP employment data. At this point, private sector employment data in the US was announced today and came in below expectations. Following these data, the FED's 25 basis point cut in October was priced in at 99%, while a 25 basis point cut in December was priced in at 88.9%. If the US shutdown continues, the Bureau of Labor Statistics is expected to not release the September nonfarm payrolls report, scheduled for release on October 3. The Fed is expected to announce its interest rate decision on the 29th of this month. The Fed made its first interest rate cut of the year in September, citing a weakening labor market, and hinted at the possibility of an additional cut in October. *This is not investment advice. Continue Reading: Has the Fed Reached a Dead End with the US Government Shutdown? Citibank Announces Whether Rate Cuts Will Continue!
