Government standoff could 'fuel support for an October cut rather than risk falling behind and having to cut more later'
The federal government shutdown could push the Federal Reserve to move its next rate cut from December to October, according to Oxford Economics, with the outlook for the economy potentially darkening.
A new analysis by the organization's chief US economist Ryan Sweet said that while its outlook for GDP, unemployment or inflation is likely to remain unchanged by the shutdown, it could imperil GDP growth in the fourth quarter.
“One forecast change that could occur is bringing forward the rate cut from December,” he wrote. “The Federal Reserve emphasized the September move as an insurance cut. A shutdown would likely leave the central bank in a fog about the labor market, fueling support for an October cut rather than risk falling behind and having to cut more later.”
He estimated that “a partial government shutdown reduces GDP growth by 0.1ppt-0.2ppts per week. For context, a shutdown that lasts the entire quarter, which has never occurred, would reduce Q4 real GDP growth by 1.2ppts-2.4ppts.”
President Trump’s suggestion that some furloughs could become permanent has injected new uncertainty. “We have reason to think that a shutdown this time may not follow past precedent,” Michael McLean, public policy senior analyst at Barclays, said in a client note. If Trump follows through, “this would be a significant departure from past practice and could inject new uncertainty into the economic effect of a shutdown, which otherwise we would expect to be marginal.”
The White House’s warning that agencies must prepare for mass layoffs if Congress fails to avert a government shutdown next week has set off fresh anxiety across the mortgage and housing industries.https://t.co/eVKK4BwkW1
— Mortgage Professional America Magazine (@MPAMagazineUS) September 25, 2025
The Washington, DC region, home to many federal employees, has already felt the sting of layoffs earlier this year. The Labor Department confirmed it would halt nearly all activity, including the Bureau of Labor Statistics’ monthly jobs report.
Delays in key data releases could leave the Fed “reliant on private data for its policy decisions if the shutdown extends,” said Mark Cabana, head of rates strategy at Bank of America.
The US private sector lost 32,000 jobs in September, according to the latest ADP National Employment Report. This report, which uses payroll data from over 26 million workers, has become especially important as the government shutdown may pause official labor statistics. The job losses highlight a slowing economy and could increase the chances of the Federal Reserve cutting interest rates at its next meeting.
The central bank made its first rate cut of the year in September, and officials like Stephen Miran have argued for more cuts in the coming months.
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