While the government shutdown has ended, previously unreleased economic data is now slated to be released in the coming days and weeks. What challenges or opportunities does this pose for market participants and analysts?
There are a couple challenges. First, some data will be incomplete. For example, National Economic Council Director Kevin Hassett has said that, due to the shutdown, the unemployment rate data for October will not be available. So, in the short term, how do we deal with these gaps in the data? Of course, there are numerous private or alternative data series that can help plug the holes, but they’re not a perfect substitute for the government data.
Second, due to the length of the shutdown, we’re still getting data for September and even August. How much weight should we put on data that’s two or even three months old? Market participants and analysts will have to pick and choose which data releases are worth reacting to.
The opportunity side is clearer. The picture of the economy will come more into focus as these data come out, helping make more informed decisions.
The Federal Reserve continues to play a pivotal role in shaping market expectations. In your view, how should the Fed approach monetary policy decisions when faced with incomplete or delayed economic data due to government shutdowns?
The interesting thing is that we’ve gotten some mixed messaging on this from the Fed. At the Federal Open Market Committee press conference, Chair Jerome Powell has talked about the reams and reams of data still available to the Fed, while at the same time comparing this situation to driving in the fog, which requires slowing down.
Ultimately, in my opinion, how the Fed should behave depends on the circumstances. I’d say, in the current situation where the labor market looks increasingly precarious, they should err on the side being proactive and cutting rates in December, despite this “fog,” which should fully dissipate by their January meeting.