Core Viewpoint - The Federal Reserve is expected to make a significant interest rate decision amid the uncertainty caused by the U.S. government shutdown, with a likely 25 basis point rate cut and an end to the balance sheet reduction plan to address labor market risks and liquidity pressures in the money market [1][2][3]. Group 1: Interest Rate Decision - A 25 basis point rate cut is almost certain, driven by concerns over labor market risks despite ongoing inflation pressures [1][3]. - The Federal Open Market Committee (FOMC) is focusing on labor market threats, with recent data indicating a potential shift from "low hiring, low firing" to "no hiring, layoffs," which could jeopardize the Fed's employment goals [4][6]. - The FOMC's internal divisions are increasing, with some members advocating for a more aggressive 50 basis point cut while others express concerns about inflation [3][4]. Group 2: Balance Sheet Reduction - Major banks, including Goldman Sachs and JPMorgan, anticipate that the Fed will announce a halt to its balance sheet reduction due to recent liquidity tightening in the money market [5]. - The Fed currently allows $50 billion in Treasury securities and $350 billion in mortgage-backed securities (MBS) to roll off its balance sheet monthly, but may shift to reinvesting all maturing Treasuries while allowing MBS to continue rolling off [5]. Group 3: Economic Data and Guidance - The ongoing government shutdown is causing a lack of critical economic data, making it difficult for the Fed to provide clear guidance on future policy paths [2][6]. - Analysts expect that the Fed will refrain from giving explicit forward guidance for December due to the unreliability of upcoming labor market data [6][7]. - The absence of reliable data may lead to a situation where skipping a widely anticipated rate cut could appear awkward for the Fed [6][7].