US: Govt Shutdown Risk Ticks Up As Schumer Withholds Dem Support From House CR

"It is not just the immediate policy decision that needs to be communicated. Providing insights on the future path matters for the activist policy maker. Notwithstanding the 50 basis point cut now, structural impediments to achieving the target on a sustained basis are not yet fully purged. The activist policymaker needs to maintain policy rate discipline and restrictiveness even after this immediate decision. This ensures that, as we move through the inflation hump, expectations remain anchored both in the near and longer term."

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The Q4 GDP print had mixed implications for the March MPR rate path from an income/productivity perspective. Although mainland real productivity per hour growth was -0.5% Q/Q (vs 0.5% prior), annual wage growth was below Norges Bank’s December MPR projection at 5.0% Y/Y (vs 5.2% forecast, 5.7% prior). 

• Whole-economy employment growth was 0.2% Q/Q (in line with the Q4 Regional Network Survey) and 0.6% Y/Y (in line with the December MPR projection). Meanwhile, hours worked grew 0.1% Q/Q on a whole-economy and mainland basis.
• These productivity, compensation and hours worked dynamics have offsetting impacts on overall unit labour cost growth.
• The weak productivity reading takes some of the shine off last quarter’s upward productivity revisions going back to 2022, but we don’t want to overstate its impact. We noted earlier that headline GDP weakness (-0.6% Q/Q) was largely due to a pullback in inventory investment, and a good deal of that would’ve bled into the mainland GDP reading too (and thus weigh on productivity growth).
• Taken alongside the GDP expenditure breakdown covered earlier, with think the Q4 GDP report should still be a dovish factor in the March MPR rate path. Governor Wolden Bache will likely reaffirm guidance for a 25bp March cut at her annual address on Thursday.