Written by: Long Yue, Wallstreetcn
Following Citibank, Goldman Sachs is also optimistic in estimating that the U.S. government shutdown is expected to end "within two weeks," which is crucial for the Federal Reserve, which relies on data for decision-making.
According to Chasewind Trading Desk, Goldman Sachs' latest analysis report shows that the ongoing partial shutdown of the U.S. federal government is showing signs of ending, and the bank expects the deadlock to most likely be broken around the second week of November.
Regarding how the shutdown will affect the Federal Reserve's December rate decision, major Wall Street banks generally believe that the duration of the shutdown is the core variable. Previously, Citibank stated in a report that it is "increasingly confident" that the government shutdown will end within the next two weeks.
Citibank believes that once the government reopens, data releases will quickly resume, and the Federal Reserve "could receive up to three employment reports" before the December meeting, which would provide sufficient grounds for another 25 basis point rate cut. Therefore, the bank maintains its baseline forecast for consecutive rate cuts by the Federal Reserve in December, January, and March next year.
The Deadlock May Be Broken, Goldman Sachs Predicts "Within Two Weeks" End
Although the duration of this government shutdown is about to surpass the 35-day record of 2018-2019, Goldman Sachs believes the "end is closer than the beginning."
According to the report, the reason this shutdown has lasted so long is partly because the Trump administration took unconventional measures, using last year's unused funds to pay military salaries and others, temporarily easing some conflicts. However, this maneuvering space is gradually running out. As the negative impact of the shutdown continues to accumulate, several key pressure points are forcing both parties in Congress to seek compromise.
First, air traffic controllers and airport security staff missed their first full payday on October 28. This increases the risk of flight delays, especially as the second payday on November 10 approaches. The experience of the 2018-2019 shutdown showed that air traffic delays were a strong catalyst for reopening the government.
Second, payments for the Supplemental Nutrition Assistance Program (SNAP, i.e., food stamps) have also been disrupted. Although the courts have ordered the government to use emergency funds to pay some benefits, payment delays have already occurred.
Third, the salaries of congressional staff themselves have also been affected, which may directly prompt lawmakers to speed up the pace of compromise.
In addition, some political schedules may also create a window for reaching an agreement. The report mentions that several states will hold elections on November 4, and Congress plans to go into recess after November 7, all of which may motivate lawmakers to reach an agreement before then.
Overall, Goldman Sachs currently expects the shutdown "is most likely to end around the second week of November."
December Rate Cut in Sight? Rate Cut Prospects Depend on Shutdown Duration
According to Goldman Sachs' projections, if the government reopens around mid-November, the U.S. Bureau of Labor Statistics (BLS) may need a few days to release the delayed September employment report. More importantly, the November employment report originally scheduled for December 5, and the November CPI report originally scheduled for December 10, may both face a risk of being delayed by a week.
Employment and inflation are the two core pillars of the Federal Reserve's monetary policy decisions. But the report states that it is still unclear how the BLS will handle the missing October data.
However, as Wallstreetcn writes, Citibank analyst Andrew Hollenhorst's team is more optimistic.
In a report, they stated that they are "increasingly confident" that the government shutdown will end within the next two weeks. Once the government reopens, data releases will quickly resume, and the Federal Reserve "could receive up to three employment reports" before the December meeting, which would provide sufficient grounds for another 25 basis point rate cut.
Therefore, Citibank maintains its baseline forecast for consecutive rate cuts by the Federal Reserve in December, January, and March next year.
Meanwhile, Morgan Stanley economist Michael T Gapen's team believes that the longer the shutdown lasts, the lower the probability of a December rate cut, and lists three scenarios:
Scenario 1: Ends next week. If the government reopens quickly, the Federal Reserve will likely receive the September, October, and November employment reports before the December meeting, as well as key data such as September and possibly October CPI and retail sales. Morgan Stanley believes this data is sufficient to support a rate cut decision.
Scenario 2: Ends in mid-November. In this case, the data will become "more limited," and the Federal Reserve may only obtain the September employment, retail, and inflation reports. However, Morgan Stanley's analysis suggests that state-level unemployment data and private sector indicators may fill some gaps, allowing the Federal Reserve to still proceed with a rate cut.
Scenario 3: Ends after Thanksgiving (late November). This is the most pessimistic scenario. At that time, the Federal Reserve will likely only obtain the September CPI and employment reports, while key data such as September retail sales may not be available. In this "data vacuum," unless there are strong negative signals from the state level or the private sector, the probability of the Federal Reserve pausing rate cuts in December will be higher.
Economic Cost Emerges, Q4 GDP Growth May Take a Hit
In addition to affecting the Federal Reserve's decisions, the economic cost of this shutdown should not be underestimated. Goldman Sachs emphasizes in the report that this shutdown may not only last the longest, but also has a wider impact than previous shutdowns that only involved a few agencies.
Goldman Sachs' team of economists estimates that if the shutdown lasts about six weeks, it will mainly reduce the seasonally adjusted annualized real GDP growth in the fourth quarter of 2025 by 1.15 percentage points due to the mandatory leave of federal employees. As a result, the report lowers the Q4 GDP growth forecast to 1.0%.
However, most of this impact is temporary. The report expects that as furloughed employees return to work and some federal procurement and investment shift from the fourth quarter to the first quarter of next year, GDP growth in the first quarter of 2026 will be boosted by 1.3 percentage points, raising the forecast for that quarter's GDP growth to 3.1%.
