US: Government Shutdown Day 6: Standoff Continues Unchanged
Senate Majority Leader John Thune (R-SD) is expected to hold a fifth vote at 17:30 ET 22:30 BST on the GOP's CR to fund the government through Nov. 21. The vote is likely to fail again. Thune has shown no sign of pivoting on his strategy to keep re-running the vote until enough Democratic Senators fold amid a pressure campaign led by OMB Director Russell Vought.
- Thune likely needs at least eight Democrats to clear the 60-vote Senate filibuster. There is no sign yet any new Democrats will join the three who have voted in favour of the bill in the previous ballots. There are still no leader-level talks on Democrats' demands for an Obamacare deal to reopen the government. House Speaker Mike Johnson (R-LA), is expected to keep the House recessed for a second successive week, effectively closing the door to any rank-and-file bipartisan negotiations.
- Pressure will intensify on Democrats this week when some federal workers miss their first paycheck on Friday. On October 15, active-duty service members will miss their first paycheck. House Majority Leader Steve Scalise (R-LA) told Republicans on Saturday to “hammer Democrats on the military pay deadline,” per Politico.
- Polling appears to give the Democrats a slight edge in public opinion. The Canvass found, "More than half of top Capitol Hill staffers (58%)” say the GOP is to blame for the shutdown. CBS notes, “Republicans and the president get relatively more [blame] than congressional Democrats." Polymarket sees a 72% implied probability the shutdown extends beyond October 15.
Figure 1: End Date of Govt Shutdown
Source: Polymarket
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LOOK AHEAD: US Macro: PPI (Wed) and CPI (Thu) Inflation
US PPI inflation is released on Wednesday before CPI inflation on Thursday, an unusual ordering that should see core PCE implications dialled in after the CPI release rather than the usual wide range waiting for specific PPI details. PPI will be watched more closely than usual this month after a far stronger than expected jump in last month’s July report fired a warning short over tariff-based cost pressures starting to feed through. That included a 0.6% M/M increase in our preferred core series of PPI ex food, energy & trade services, which strips out items such as the then booming portfolio management & investment advice category following the strength in equity markets. It's too early to gauge an accurate sense of analyst expectations for August.
CPI inflation on Thursday will then be the last major release ahead of the Sep 17 FOMC decision. Consensus looks for core CPI at 0.3% M/M after the 0.32% M/M in July, another monthly increase comfortably above a pace consistent with 2% inflation. August should in theory start to see the largest tariff impacts along with September and possibly October. Returning to July’s report, core goods inflation was softer than expected, at a still solid (by core goods standards) 0.2% M/M for a second month running but about half that of 0.4% expected by analysts. Instead, non-housing core services surprised higher. The latter was a “dangerous” development in the words of a usually dovish Chicago Fed’s Goolsbee (’25 voter), who speaking after Friday’s payrolls report is still undecided on a September cut whilst looking for August inflation data “to get more information”.
LOOK AHEAD: US Macro: Payrolls Preliminary Benchmark Revisions (Tue)
- The BLS on Tuesday will publish preliminary estimates of benchmark revisions, based off QCEW data for Q1.
- These will give an indication of the actual benchmark revisions on the Mar 2025 level of payrolls due with the Jan 2026 payrolls report released in early February.
- Bear in mind that the final benchmark estimate tends to nearly always be more negative than the preliminary figure – see historical values to the right.
- That doesn’t mean they can’t be large again after last year’s historically negative revision that lowered the level of payrolls by ~600k. Initial estimates we’ve seen look for another large downward revision, with the smallest being worth -550k but with wide ranges higher.
FED: Barclays Adds A Cut To 2025 Fed View
Barclays analysts now expect three Fed cuts in the remainder of the year, adding October to their pre-existing call for 25bp reductions in September and December. "Given the disappointing August employment report, we expect the FOMC to see more elevated downside risks to the employment side of the mandate."
- As for a 50bp September cut, "we think that the FOMC will view [that] as sending too strong a signal that labor market conditions are deteriorating. Indeed, we think that participants such as Powell understand that the slower pace of payroll employment reflects at least, in part, slower labor supply, which does not translate into increased labor market slack."
- For 2026 they continue to expect 25bp cuts in March and June to 3.00-3.25%, but "we do not think the FOMC will be able to cut rates more than twice next year, as we think that activity will show some slight acceleration, with the economy adapting to the new tariff environment and fiscal policy providing some support, and the unemployment rate will revert down amid limited increase in labor supply."
