Goldman Sachs predicts that the government shutdown is "most likely to end around the second week of November," but also warns that key economic data will be delayed.

Written by: Long Yue, Wall Street Insights

Following Citigroup, Goldman Sachs also optimistically estimates that the U.S. government shutdown is expected to "end within two weeks," which is crucial for the Federal Reserve that relies on data for decision-making.

According to Wind Trading Desk, Goldman Sachs' latest analysis report shows that the ongoing partial shutdown of the U.S. federal government is showing signs of ending, and the bank expects the deadlock to be broken most likely 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 a core variable. Previously, Citigroup stated in a report that it is "increasingly confident" that the government shutdown will end within the next two weeks.

Citigroup believes that once the government reopens, data releases will quickly resume, and the Federal Reserve "may receive up to three employment reports" before the December meeting, which will provide sufficient basis for continuing to cut rates by 25 basis points. Therefore, the bank maintains its baseline forecast for the Federal Reserve to cut rates consecutively in December, January, and March.

Deadlock Expected to Break, Goldman Predicts "End Within Two Weeks"

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

According to the report's analysis, the reason for the prolonged shutdown is partly due to the Trump administration's unconventional measures, using unspent funds from last year to pay military salaries, temporarily alleviating some conflicts. However, this maneuvering space is gradually running out. As the negative impacts of the shutdown continue to accumulate, several key pressure points are forcing both parties in Congress to seek compromise.

First, air traffic controllers and airport security personnel missed their first full payday on October 28. This increases the risk of delays in air travel, especially with the second payday approaching on November 10. The experience from the 2018-2019 shutdown indicates that air travel delays are a strong catalyst for reopening the government.

Second, payments for the Supplemental Nutrition Assistance Program (SNAP, or food stamps) have also been interrupted. Although a court ruling requires the government to use emergency funds to pay some benefits, payment delays have become a reality.

Third, the salaries of congressional staff are also affected, which may directly prompt lawmakers to accelerate their compromise efforts.

Additionally, some political schedules may create a window for reaching an agreement. The report mentions that several states will hold elections on November 4, and Congress plans to enter a recess after November 7, which may motivate lawmakers to reach an agreement before then.

Overall, Goldman Sachs currently expects that the shutdown is "most likely to end around the second week of November."

Prospects for December Rate Cuts? Rate Cut Outlook Depends on "Duration of the Shutdown"

According to Goldman Sachs' projections, if the government reopens around mid-November, the Bureau of Labor Statistics (BLS) may need a few days to release the delayed September employment report. More importantly, the November employment report, originally scheduled for release on December 5, and the November CPI report, originally scheduled for December 10, may face a risk of being delayed by a week.

Employment and inflation are the two core pillars of the Federal Reserve's monetary policy decision-making. However, the report states that it is currently unclear how the BLS will handle the missing October data.

However, an article from Wall Street Insights noted that Citigroup's analyst Andrew Hollenhorst's team is more optimistic.

In a report, they stated that they are "increasingly confident" that the government shutdown will end within the next two weeks. Once the government reopens, data releases will quickly resume, and the Federal Reserve "may receive up to three employment reports" before the December meeting, which will provide sufficient basis for continuing to cut rates by 25 basis points.

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

Morgan Stanley economist Michael T. Gapen's team believes that the longer the shutdown lasts, the lower the probability of a rate cut in December, and they outline three scenarios:

Scenario 1: Ends next week. If the government quickly reopens, the Federal Reserve will likely receive the September, October, and November employment reports, as well as key data such as the September and possibly October CPI and retail sales before the December meeting. Morgan Stanley believes this data would be sufficient to support a rate cut decision.

Scenario 2: Ends mid-November. In this case, the data will become "more limited," and the Federal Reserve may only receive the employment, retail, and inflation reports for September. However, Morgan Stanley's analysis suggests that state-level unemployment data and private sector indicators may fill some gaps, allowing the Federal Reserve to still consider a rate cut.

Scenario 3: Ends after Thanksgiving (late November). This is the most pessimistic scenario. At that time, the Federal Reserve will likely only receive the CPI and employment report for September, while there is a risk of not obtaining key data such as September retail sales. In this "data vacuum," unless there are strong signals of deterioration from state or private sectors, the likelihood of the Federal Reserve pausing rate cuts in December will be higher.

Economic Costs Emerge, Fourth Quarter GDP Growth May Be Severely Impacted

In addition to affecting the Federal Reserve's decision-making, the economic costs of this shutdown should not be underestimated. Goldman Sachs emphasizes in the report that this shutdown may not only last the longest but also has a broader impact than previous shutdowns that only involved a few agencies.

Goldman Sachs' team of economists estimates that if the shutdown lasts about six weeks, it will primarily lead to a 1.15 percentage point reduction in the seasonally adjusted annualized real GDP growth for the fourth quarter of 2025 due to the forced leave of federal employees. As a result, the report lowers the fourth quarter GDP growth forecast to 1.0%.

However, this impact is largely temporary. The report expects that as furloughed employees return to work and some federal procurement and investment shift from the fourth quarter to the first quarter of next year, GDP growth in the first quarter of 2026 will receive a boost of 1.3 percentage points, raising the GDP growth forecast for that quarter to 3.1%.

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