Morgan Stanley Sees December Fed Rate Cut Amid Delayed Economic Data After Shutdown

With the record-long U.S. government shutdown expected to end this week, Wall Street is turning its attention to the long-delayed release of key economic reports—particularly the September jobs data. According to Morgan Stanley economists, this report will play a crucial role in shaping the Federal Reserve’s December policy decision as officials return to a data-driven approach.

Morgan Stanley forecasts that the September payroll report, likely to be released within three days of the shutdown’s conclusion, will confirm the slowdown in hiring. The firm expects just 50,000 new jobs for the month, with the unemployment rate holding steady at 4.3%. For the following months, October and November, economists predict unemployment could rise to around 4.5% or higher—partly reflecting temporary furloughs and federal buyouts linked to the shutdown.

The economists noted that while labor data will resume soon, other indicators such as inflation, consumer spending, and GDP growth will face further delays. As a result, payroll and jobless claims data will be key drivers of the Fed’s decisions this winter, underscoring a “renewed focus on data rather than risk management.”

Morgan Stanley maintains its call for a rate cut in December, though it cautions that stronger-than-expected economic data could shift the Fed’s stance toward maintaining current rates. Fed Chair Jerome Powell recently emphasized that a December cut is “not a done deal,” reflecting division among policymakers.

Fed Governor Stephen Miran has urged a 50-basis-point rate cut to guard against a potential slowdown, while Chicago Fed President Austan Goolsbee has expressed caution due to limited data availability during the shutdown. The coming weeks’ reports will likely determine whether the Fed proceeds with easing or opts to wait for clearer economic signals.