Here’s How the U.S. Government Shutdown Could Impact Rate Cuts

The ongoing U.S. government shutdown could complicate the Federal Reserve’s path toward further interest rate cuts, according to Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company.

As the shutdown entered its third day on Friday, Schutte said in his latest weekly commentary note that while Wall Street appeared “remarkably unfazed,” the halt in government activity risks depriving policymakers of critical economic data.

“The decision of how quickly to lower interest rates will only become more complicated if the government shutdown continues to deprive monetary policymakers of key data points,” he said.

With the Bureau of Labor Statistics unable to publish its September jobs report, and this week’s Consumer Price Index data also in jeopardy, the Fed could be forced to make decisions with limited visibility.

The central bank cut rates by 0.25 percentage point last month, its first reduction since December, and has pencilled in two more cuts for 2025.

Fed Chair Jerome Powell has acknowledged the delicate balance facing policymakers, warning that easing too aggressively could reignite inflation, while keeping policy tight for too long could soften the labour market unnecessarily.

Schutte said that while the economy still shows surface-level resilience, “cracks appear to be forming in the labour market,” with hiring plans at their lowest level since 2009 and job growth slowing.

Despite the uncertainty, Schutte emphasised that Northwestern Mutual’s investment approach remains diversified and data-driven. “We build a mosaic around a vast array of data,” he said, underscoring the firm’s long-term strategy amid short-term volatility.