US | Fed to ease again despite flying blind on key economic data

Summary

We expect most FOMC participants to conclude that downside risks to the labor market remain firmly in place and to support a second consecutive rate cut this week.

Key points

• Key points:
• Despite the government shutdown disrupting official data releases, available activity indicators suggest that underlying momentum likely remains solid.
• September jobs report’s delay clouds visibility into labor market conditions, but alternative data still point to a weak jobs market outlook.
• Inflation data continued to suggest that the pass-through from tariffs to consumer prices remains limited for now, despite certain goods still reflecting some effects.
• Markets expect the Fed to keep easing well into next year, but a cautious tone may challenge those expectations and prompt a partial rebound in long-term yields.
• We expect the Fed to deliver a 25bp rate cut, bringing the target range to 3.75-4.00%, while aiming to avoid fueling excessive easing expectations for next year.

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