Goldman Sachs predicts that the "US government shutdown" will end within two weeks. Is it more reasonable for the Federal Reserve to cut interest rates in December?

Release Time：2025-11-03

Following Citigroup, Goldman Sachs also optimistically predicts that the US 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 the Chui Feng Trading Desk, the latest analysis report released by Goldman Sachs shows that the partial shutdown of the US federal government, which has lasted for several days, is showing signs of coming to an end. The bank expects 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 said in a report that it was "increasingly confident" that the government shutdown would end within the next two weeks.

Citigroup believes that once the government reopens, data releases will resume rapidly, and the Federal Reserve "may receive as many as three employment reports" before the December meeting, which will provide sufficient basis for another 25 basis point rate cut. Therefore, the bank maintains its benchmark forecast for the Federal Reserve to cut interest rates consecutively in December, January and March next year.

The deadlock is expected to be broken, and Goldman Sachs predicts it will end within "two weeks"

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

According to the report analysis, one of the reasons why this shutdown has lasted so long is that the Trump administration has taken unconventional measures, using last year's unused funds to pay military salaries and so on, thereby temporarily easing some conflicts. However, this space for maneuver is gradually being exhausted. As the negative impacts of the shutdown continue to accumulate, multiple key pressure points are forcing both parties in Congress to seek compromise.

First of all, air traffic controllers and airport security personnel missed their first full payday on October 28th. This increases the risk of delays in air travel, especially as the second payday on November 10th approaches. The experience of the shutdown in 2018-2019 demonstrated that air traffic delays were a powerful catalyst for the government to reopen.

Secondly, payments for the Supplemental Nutrition Assistance Program (SNAP, or food stamps) have also been disrupted. Although the court ruled that the government should use emergency funds to pay part of the welfare, the delay in payment has become a fact.

Secondly, the salaries of congressional staff themselves have also been affected, which may directly prompt lawmakers to accelerate the pace of compromise.

In addition, some political agendas may also create Windows for reaching an agreement. The report mentioned that several states will hold elections on November 4th, and Congress plans to enter a recess after November 7th. All these could serve as the driving force for lawmakers to reach an agreement before then.

Overall, Goldman Sachs 'current expectation is that the shutdown "is most likely to end around the second week of November".

Is a rate cut expected in December? The prospect of interest rate cuts depends on the duration of the "closure"

According to Goldman Sachs 'calculation, if the government reopens around mid-November, it may take the Bureau of Labor Statistics (BLS) of the United States several days to release the postponed September employment report. More importantly, both the November employment report, originally scheduled for release on December 5th, and the November CPI report, originally set for release on December 10th, may face the risk of being delayed by one week.

Employment and inflation are the two core pillars of the Federal Reserve's monetary policy decisions. But the report said it is still unclear how the Bureau of Labor Statistics will handle the missing October data.

However, the Wall Street Journal article wrote that the team of Citigroup analyst Andrew Hollenhorst is more optimistic.

In a report, it said it was "increasingly confident" that the government shutdown would end within the next two weeks. Once the government reopens, data releases will resume rapidly. The Federal Reserve "may receive as many as three employment reports" before the December meeting, which will provide sufficient basis for another 25 basis point rate cut.

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

The team of Morgan Stanley economist Michael T Gapen believes that the longer the closure lasts, the lower the probability of a rate cut in December, listing three scenarios:

Scenario One: It will end next week. If the government reopens quickly, the Federal Reserve will have a high probability of obtaining the three employment reports for September, October and November, as well as key data such as the CPI and retail sales for September and possibly October, before the December meeting. Morgan Stanley believes that these data are sufficient to support its decision to cut interest rates.

Scenario Two: It will end in mid-November. In this case, the data will become "more limited", and the Federal Reserve may only be able to obtain the employment, retail and inflation reports for September. However, Morgan Stanley's analysis suggests that at that time, state-level unemployment data and private sector indicators may fill some of the gaps, making it still possible for the Federal Reserve to push forward with interest rate cuts.

Scenario Three: It ends after Thanksgiving (late November). This is the most pessimistic scenario. At that time, the Federal Reserve is highly likely to only be able to obtain the September CPI and employment reports, while there is a risk that key data such as September retail sales will not be available. In this "data vacuum" situation, unless there are strong deterioration signals from the state level or the private sector, the possibility of the Federal Reserve pausing interest rate cuts in December will be higher.

Economic costs are emerging, and GDP growth in the fourth quarter may suffer a heavy blow

Apart from influencing the Federal Reserve's decision-making, the economic cost of this shutdown should not be underestimated. Goldman Sachs emphasized in its report that this shutdown not only may last the longest but also have a wider impact than ever before, far exceeding previous shutdowns that only involved a few institutions.

Goldman Sachs 'team of economists estimates that if the shutdown lasts for about six weeks, the seasonally adjusted annualized real GDP growth in the fourth quarter of 2025 will decrease by 1.15 percentage points mainly due to mandatory leave for federal employees. The report thus lowered its GDP growth forecast for the fourth quarter to 1.0%.

However, most of this impact is temporary. The report predicts that as employees on leave return to work and some federal purchases and investments shift from the fourth quarter to the first quarter of next year, GDP growth in the first quarter of 2026 will receive a 1.3 percentage point boost, pushing the GDP growth forecast for this quarter up to 3.1%.

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