Goldman Sachs predicts that the "U.S. government shutdown" will end within two weeks, and that the Federal Reserve's rate cut in December has "more basis"?

Following Citigroup, Goldman Sachs also optimistically estimates that the U.S. government shutdown is likely to end within "two weeks," which is crucial for the Federal Reserve that relies on data for decision-making.

According to news from the Chase trading desk, Goldman Sachs' latest analysis report shows that the ongoing partial shutdown of the U.S. federal government is showing signs of coming to an end, with the bank predicting that the deadlock is most likely to be broken around the second week of November.

Regarding how the shutdown will affect the Federal Reserve's interest rate decision in December, major Wall Street banks generally believe that the duration of the shutdown is the core variable. Previously, Citigroup stated in a report that it is "increasingly confident" that the government shutdown will end within the next two weeks.

Citigroup believes that once the government reopens, data releases will quickly resume, and the Federal Reserve "may receive up to three employment reports" before the December meeting, which will provide sufficient basis for continuing to cut interest rates by 25 basis points. Therefore, the bank maintains its baseline forecast for the Federal Reserve to cut rates consecutively in December, January, and March.

Deadlock Likely to Be Broken, Goldman Predicts "Within Two Weeks"

Although this government shutdown is approaching the 35-day record set in 2018-2019, Goldman Sachs believes that the "end of the shutdown is closer than the beginning."

According to the report's analysis, the reason for the prolonged shutdown is partly due to the Trump administration's unconventional measures, using unspent funds from last year to pay military salaries, temporarily alleviating some conflicts. However, this maneuvering space is gradually running out. As the negative impacts of the shutdown continue to accumulate, several key pressure points are forcing both parties in Congress to seek compromise.

First, air traffic controllers and airport security personnel missed their first full payday on October 28. This increases the risk of delays in air travel, especially with the second payday approaching on November 10. The experience from the 2018-2019 shutdown indicates that air traffic delays are a powerful catalyst for prompting the government to reopen.

Second, payments for the Supplemental Nutrition Assistance Program (SNAP, or food stamps) have also been interrupted. Although court rulings require the government to use emergency funds to pay some benefits, payment delays have become a reality.

Third, the salaries of congressional staff are also affected, which may directly prompt lawmakers to accelerate their compromise efforts.

Additionally, some political schedules may create a window for reaching an agreement. The report mentions that several states will hold elections on November 4, and Congress plans to enter a recess after November 7, which may motivate lawmakers to reach an agreement before then.

Overall, Goldman Sachs currently expects that the shutdown is "most likely to end around the second week of November."

Is a Rate Cut in December Likely? The Outlook for Rate Cuts Depends on the Duration of the "Shutdown"

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 release on December 5, and the November CPI report, originally scheduled for release on December 10, may face the risk of being delayed by a weekEmployment and inflation are the two core pillars of the Federal Reserve's monetary policy decision-making. However, the report indicates that it is currently unclear how the Bureau of Labor Statistics will handle the missing October data.

Nevertheless, the Wall Street Journal article stated that Citigroup's 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 "may receive up to three employment reports" before the December meeting, which will provide sufficient basis for continuing to cut interest rates by 25 basis points.

Therefore, Citigroup maintains its baseline forecast for the Federal Reserve to cut interest rates consecutively in December, January, and March next year.

On the other hand, Morgan Stanley economist Michael T Gapen's team believes that the longer the shutdown lasts, the lower the probability of a rate cut in December, and they outlined three scenarios:

• Scenario 1: Ends next week. If the government reopens quickly, the Federal Reserve is likely to receive three employment reports for September, October, and November, as well as key data such as September and possibly October CPI and retail sales before the December meeting. Morgan Stanley believes that 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 employment, retail, and inflation reports for September. However, Morgan Stanley analyzes that state-level unemployment data and private sector indicators may fill some gaps, allowing the Federal Reserve to still potentially proceed with a rate cut.

• Scenario 3: Ends after Thanksgiving (late November). This is the most pessimistic scenario. At that time, the Federal Reserve is highly likely to only obtain the CPI and employment report for September, while there is a risk of not being able to access key data such as September retail sales. In this "data vacuum," unless there are strong signals of deterioration from state-level or private sector sources, the likelihood of the Federal Reserve pausing rate cuts in December will be higher.

Economic Costs Emerge, Fourth Quarter GDP Growth May Be Severely Impacted

In addition to affecting the Federal Reserve's decision-making, the economic costs of this shutdown should not be underestimated. Goldman Sachs emphasized in its report that this shutdown may not only last the longest but also have a broader impact than previous shutdowns that only involved a few agencies.

Goldman Sachs' economist team estimates that if the shutdown lasts about six weeks, it will primarily lead to a reduction of 1.15 percentage points in the seasonally adjusted annualized real GDP growth for the fourth quarter of 2025 due to the forced leave of federal employees. As a result, the report has lowered its fourth quarter GDP growth forecast to 1.0%.

However, most of this impact is expected to be temporary. The report anticipates 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 receive a boost of 1.3 percentage points, raising the GDP growth forecast for that quarter to 3.1%The above wonderful content comes from Chasing Wind Trading Platform.

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