EM LATAM CREDIT: Ecuador: Protests End, Diesel Price Cut – Positive

• MNI: US REDBOOK: SEP STORE SALES +6.2% V YR AGO MO
• US REDBOOK: STORE SALES +5.7% WK ENDED SEP 20 V YR AGO WK

Chicago Fed's Goolsbee (2025 voter) in a CNBC interview calls current policy "mildly restrictive" and points to a neutral rate 100-125bp lower than current rates. However he says that rates should come down at a "gradual" pace and with inflation stubbornly above target, the Fed needs to be "a little careful". In sum it wouldn't surprise us if his rate outlook was for another 2 cuts this year (in line with the median 3.6% dot submitted in September) and for another 2-3 cuts next year for a total 125-150bp of easing to 2.9 or 3.1% by end-2026 including the 25bp delivered last week.

• He says: "I think we are restrictive, mildly restrictive. It's worth noting, if you hold the rate at some level and inflation creeps up, you're passive cutting. So I don't see that the real rate is as restrictive as it was before we started getting this inflation. But I still think in the period before April 2, before we started getting some of the some of these shocks, I thought as inflation comes down to 2% we could still go down a fair amount with the rate. What's neutral, I think, is below where we are now by 100, 125 basis points, something like that."
• Asked if he considered supporting a 50bp cut, Goolsbee says: "No, I'm still okay with moving to be in a better spot. And I think eventually, at a gradual pace, rates can come down a fair amount if we can get this stagflationary dust out of the air. But with inflation having been over the target for four and a half years in a row and rising, I think we need to be a little careful with getting overly upfront aggressive."
• "If you look at the dot plot, where everybody gives an opinion of where do they think rates are going to settle, there's a big mass of almost everyone on the committee saying that rates can go down something lay as I say, that ultimately the rate might settle around 3% with inflation at 2%. And I'm comfortable with that, with that, as a marker."
• Goolsbee advertises his Chicago Fed's latest labor market indicators - asked if it's possible that the US is past the low point in the labor market and economic activity, as suggested earlier by ex-St Louis Fed Pres Bullard, Goolsbee doesn't totally discount the possibility:
• "If you look at these new Chicago Fed labor market indicators, they don't totally suggest that. So the labor market continues to cool at a sort of a mild to modest pace, if you look at the aggregate jobs numbers, they turned decidedly sour compared with where they were, say, a year ago. But my caution on just looking at that, of course, is that the supply side is moving all around with immigration and and some some other things. So it is possible.... You've got to manage the risk. And so I think to the extent that Bullard or others are highlighting that the economy doesn't have to just deteriorate, it could be getting hotter, and if it got hotter and inflation has already been above the target for almost five years you would you would need to think about that, right?"

The implied probability of a government shutdown on October 1 remains roughly 60%, despite confirmation of a Thursday meeting between President Donald Trump and Senate Minority Leader Chuck Schumer (D-NY) and House Minority Leader Hakeem Jeffries (D-NY).  

• The Democrat leaders said in a statement this morning, “...we will emphasize the importance of addressing rising costs, including the Republican healthcare crisis. It’s past time to meet and work to avoid a Republican-caused shutdown.”
• A similar meeting between Trump, Schumer, and then-Speaker Nancy Pelosi (D-CA) in 2018 resulted in a record 34-day shutdown. During that meeting, Trump welcomed blame for a shutdown, saying he would be “proud” to induce a shutdown over border wall funding. It is unlikely Trump will offer a similar concession to Democrats this time.
• Democrats have rejected a 'clean' GOP spending patch through November 21, countering with a separate partisan CR that includes a raft of policy demands on health care.   
• Those demands will not be entertained by Republicans. At a minimum, Democrats want Trump to endorse a permanent extension to expiring Obamacare subsidies, either in a CR or in a future appropriations deal as a potential offramp.
• While there is some Republican support for such a measure, Republican leadership believe they have leverage to force Schumer to fold ahead of the deadline. As Punchbowl notes, “Trump and OMB Director Russ Vought have wide discretion over how painful a shutdown will be."

Figure 1: Government Shutdown by October 1

Source: Polymarket