The U.S. government shutdown is about to end, and Morgan Stanley has developed a data regression timeline

Wallstreetcn
2025.11.12 01:40
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Morgan Stanley predicts that before the Federal Reserve's interest rate meeting on December 9-10, it will have access to complete data on September employment, inflation, retail sales, and the preliminary GDP for the third quarter. The key factor is whether the employment reports for October and November can be released in a timely manner. The firm maintains its expectation of a 25 basis point rate cut in December, citing the continued weakness in the labor market; however, it also warns investors that the market has already priced in the rate cut, and the actual risk lies in the possibility that unexpectedly strong data could force the Federal Reserve to delay the rate cut

As the U.S. government shutdown nears its end, market focus is shifting from the political deadlock to the release schedule of the backlog of economic data and its impact on the Federal Reserve's December interest rate decision.

According to news from the Wind Trading Desk, Morgan Stanley released a research report on November 10, predicting the release schedule of key data based on experiences from 2013. The report noted that once the government resumes operations, the delayed economic data will begin to be released in succession.

According to the report's estimates, if the government ends the shutdown on November 14 (Friday):

  • September Employment Report: Expected to be released on the third business day after the end of the shutdown, around November 19. This will be the first major data welcomed by the market.

  • September Retail Sales and PPI: Expected to be released on the eighth business day after the end of the shutdown, around November 26.

  • Third Quarter GDP: Expected to be released on the fifteenth business day, December 5.

  • October Employment Report: Likely to be released on the sixteenth business day, December 8 (the day before the Federal Reserve meeting).

The report emphasizes that due to the shutdown covering the entire month of October, the delay in collecting October data may be more severe than in 2013, with further risks of postponement in release times. For example, the retail sales and CPI data for October may not be available until December 18, after the Federal Reserve meeting.

The "Data Puzzle" for December Rate Cuts: What Can the Federal Reserve See?

For investors, the key question is how much information the Federal Reserve can gather during its meeting on December 9-10.

According to Morgan Stanley's analysis, the Federal Reserve will almost certainly have access to September's employment, inflation (PCE), retail sales data, as well as some trade and manufacturing indicators. Additionally, the preliminary value of the third quarter GDP and the October employment report may also be released before the meeting. The report even suggests that the November employment report could be released on time or close to on time.

However, decision-makers will face a severe lack of data for the fourth quarter. Aside from auto sales data, there will be almost no official data on personal spending for the fourth quarter before the meeting.

Morgan Stanley's Benchmark Forecast: 25 Basis Points Rate Cut in December

Despite the data delays, Morgan Stanley maintains its core view: the Federal Reserve will cut rates by 25 basis points at the December meeting.

The report argues that the key drivers for the Federal Reserve to continue cutting rates are weak labor demand and rising unemployment rates. Morgan Stanley predicts that non-farm payrolls in September will increase by only 50,000, with the unemployment rate remaining at 4.3%; while the unemployment rates for October and November are expected to rise further to 4.5%. This sign of a "moderate easing" in the labor market will be sufficient to support the Federal Reserve's actions

Asymmetric Risks Facing Investors: When "Good News" Becomes "Bad News"

The report highlights the "asymmetric risks" currently facing investors in the market. Federal Reserve Chairman Jerome Powell made it clear in the October meeting that a rate cut in December is far from a certainty, and the committee will rely more on data.

This means:

  • If the data is weak: Since the market has already priced in rate cut expectations, in-line weak data (such as a slowdown in job growth) will not trigger significant market volatility, unless the data shows a sharp economic decline (such as a surge in layoffs).

  • If the data is strong: This is where the real risk lies. If the job market unexpectedly accelerates again (for example, strong rebounds in non-farm payroll data and a decrease in the unemployment rate), it will directly challenge the mainstream narrative of rate cuts in the market. In this case, the market will be forced to rethink the Federal Reserve's policy interest rate path, potentially leading to a repricing of interest rate futures and putting pressure on risk assets.

In summary, after the data returns, the market's focus will be highly concentrated on the labor market. For investors, "good news" (strong economic performance) in economic data over the coming weeks may actually become "bad news" that leads to market adjustments.

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