Archive

US Shutdown: A Means To An End

• The Democrats opted for a US government shutdown despite the Administration being well prepared for what it sees as an opportunity to promote its longer-term agenda.
• While they hold out, the president’s ‘grim reaper’, OMB Director Russell Vought, will have a free hand to cut the size of government and pursue his unitary executive vision.
• Some of his actions will undoubtedly be challenged in the courts, but the signs are that the Supreme Court will continue to side firmly with the Administration.

By Alastair Newton

US: Steady As She Shuts

• The US government shutdown causes vital economic data to go dark, leaving the Fed facing market pressure to blindly cut rates as priced, creating risks of policy error.
• Both parties see strategic value in prolonging the shutdown, risking disruption that lasts well beyond historical norms. But levels will rebound when it inevitably ends.
• In the interim, private surveys signal weakness, and this picture is unlikely to improve significantly enough to block cuts in 2025, but that won’t drive more Fed cuts in 2026.

By Philip Rush

HEM: Oct-25 Views & Challenges

• Hawkish inflation and policy rate pricing shifts toward our UK/EA view did not stop US rates frontloading more cuts.
• We still see markets overpricing easing, with UK inflation expectations stuck above target, and neutral rates high.
• A break in activity data, especially unemployment, and underlying price/wage inflation, would threaten our view.

Resilience Is Reinstating

• Falling US jobless claims and bullish GDP revisions are reinstating evidence of ongoing resilience. Underlying GDP only slowed by about 0.1pp in H1, or 15% of 2024’s average.
• Risk management rate cuts to balance the higher costs of being wrong on the downside raise the probability that easing proves premature and swiftly ends.
• The ECB already sees the transmission of its past cuts trending loan growth higher. It may reach pressures consistent with hikes next year, and it already clashes with easing.

By Philip Rush