We expect the Federal Reserve to deliver another 25 bp rate cut on Wednesday, despite the disruption caused by the U.S. government shutdown. The Fed is unlikely to risk market turbulence, and its communication is expected to be cautious — with a limited impact on the dollar.
Key Takeaways
- The Fed is likely to cut rates by 25 bps despite the government shutdown
- Lack of fresh U.S. macro data means the Fed is partly “flying blind”
- Available indicators point to continued weakness in the labour market
- The policy statement may remain largely unchanged
- No dot plot or economic projections this month
- We expect two more rate cuts in 2025
Fed Flying Partly Blind
While Fed officials will not be making decisions completely blind, the ongoing federal government shutdown deprives them of a clear economic picture. Since the shutdown began earlier this month, there have been no tier-one macroeconomic data releases — particularly labour market reports — and it is unclear when that will change.
Fortunately, the Bureau of Labor Statistics made an exception and confirmed that September’s CPI inflation report will still be published on Friday (24 October). It is expected to show only a modest uptick in price pressures.
Why a Cut Still Looks Inevitable
We do not expect that uncertainty to stand in the way of a rate cut. The decision was already almost certain before the shutdown and has been fully priced into futures markets since the weak July NFP report and a record 12-month data revision. Nothing in the delayed data justifies holding back. Fed policymakers are likely comfortable cutting even without a full real-time picture of the economy.
Recent weeks have not been devoid of economic signals — but they came mostly from secondary indicators. These broadly reinforced the view that the U.S. economy remains resilient despite trade uncertainty, as shown by PMI surveys and the Atlanta Fed’s GDPNow estimate (3.9% annualised). However, labour market cooling is increasingly evident — private payrolls fell by 32k in September.
Messaging Likely Similar to September
FOMC Chair Jerome Powell reiterated in Philadelphia on 14 October that an October cut — previously signalled by the Fed — remains the most likely outcome. He again emphasised the sharp slowdown in employment, calling it a major economic risk.
Importantly, he noted that the employment outlook has not changed since the September meeting, when the Fed’s dot plot projected two rate cuts in 2025.
There will be no updated macro projections or dot plot this month, so markets will rely primarily on the wording of the statement and Powell’s press conference. Given limited new data, we expect the statement to be almost identical to September’s — with a likely emphasis on employment risks and a note that the shutdown complicates policymaking.
Any softening of the dovish tone may come from mention of persistent inflation risks. While the Fed still views tariff-driven price pressures as temporary, it remains alert.
Limited Dollar Reaction Expected
The Fed faces a delicate balancing act. In our view, the condition of the U.S. labour market strongly supports additional rate cuts — but inflation risks call for restraint.
Before the government shutdown, we expected two more cuts this year — in October and December — and we still do. The policy trajectory beyond 2025 remains less clear and will depend on incoming data.
Assuming the Fed delivers the widely expected 25 bp cut and avoids stirring markets, the dollar’s reaction should be minimal. Futures markets have already priced in 25 bp cuts in both October and December. A cut now — combined with a signal of readiness to cut again — should be market-neutral.
However:
- Any signs of internal dissent within the FOMC
- Or a more dovish tone emphasising labour market concerns
would be dollar-negative.
Conversely, a stronger-than-expected CPI report — paired with warnings about sustained tariff-driven inflation — could offer support to the dollar.
The FOMC policy decision will be announced on Wednesday, 29 October at 7:00 p.m. CET, followed by Chair Powell’s press conference 30 minutes later.
