By Matthew Ryan, Head of Market Strategy at international payments company Ebury

Federal Reserve officials won’t be walking completely blind heading into October’s FOMC meeting, although the ongoing government shutdown means they will be relying on a limited amount of data. US macroeconomic data releases have been few and far between since the federal shutdown began earlier this month, particularly on the labor market, and it is far from clear when this lack of data will end. On a positive note, the Fed will have the September Consumer Price Index (CPI) report available on Friday, with expectations for a mild increase in inflationary pressures.

However, we do not expect uncertainty to prevent a rate cut in October. A rate cut this month was on the cards discounted before the shutdown and has been fully incorporated into futures prices since the release of the July jobs data in early August. There is nothing in the evidence, pending publication, that he could have stop a rate cut in Octoberand Fed officials feel sure to cut rates this month without necessarily having a holistic view of the state of the US economy.

The past few weeks have not been entirely without economic news, but we have had to rely on secondary data to form a picture of the state of the economy. The data we obtained were broadly consistent with the prevailing view. This is that US economic activity remains broadly resilient despite trade uncertainty, as shown by PMI data and the GDPNow estimate (3.9% y-o-y), while the labor market is showing signs of slowing, as evidenced by the contraction in private sector employment in September (-32k).

The chairman of the FOMC, Jerome Powellconfirmed to markets during his Oct. 14 speech in Philadelphia that an October rate cut, strongly signaled by the Fed after its last meeting, remains on the table. He again warned of a significant slowdown in hiring, which is seen as a risk to the economy. He also pointedly noted that, based on available data, the outlook for employment had not changed since the September meeting, when the Fed projected two more cuts for 2025 on its dot plot.

There will be no updated macroeconomic forecasts or dot plot this month, so market participants will depend on the bank’s statements in both the announcement and Powell’s press conference. With limited new information to build on, we expect the bank’s announcement to remain broadly unchanged from September. In it, the Fed will likely highlight threats to employment, possibly noting that those risks have increased and that the shutdown has made the decision-making process more difficult. However, rising risks to inflation remain a headache, and should prompt a cautious response, even if policymakers see the impact of tariffs on consumer prices as temporary.

While there remains a clear gap in interest rate expectations between the Fed (three more cuts by the end of 2026) and futures (five), we don’t expect Powell to try to pander to the market’s view at this juncture. Powell will again have to strike a delicate balance between signaling further cuts while keeping expectations in check. More than ever, we think Powell will want to keep a neutral tone that essentially sends a “nothing of note” message to market participants.

We believe the Fed has a difficult task ahead of it. In our opinion, state of the US labor market significantly strengthens the case for additional rate cutsbut upside risks to inflation call for restraint. Before the Fed shutdown, we predicted two more cuts from the Fed this year in October and December, a view that has not changed due to the lack of official data releases that would change our position. The policy path for 2026 is less clear and will depend heavily on incoming data once we receive it.

Assuming the Fed sticks to its expected stance and does its best to ensure market stability on Wednesday, then we could see an unusually soft reaction to the dollar. Futures markets are fully discounting, with almost no difference, 25 basis point (bp) declines in both October and December. Therefore, a rate cut this month, coupled with a hint of another next session, will be accepted without complaint by the markets.

Signs of older dissent within the FOMC and/or softer statements that reinforce fears about the labor marketwould be bearish on the dollar. Conversely, a better result in Friday’s CPI data, followed by rhetoric sounding the alarm about tariff-induced inflation, could provide some support.

The FOMC rate decision will be announced at 20:00 CET (21:00 Greek time) on Wednesday, with Chairman Powell’s press conference to follow 30 minutes later.