TSX gains after CPI shows US inflation rose 3%
Investing.com -- As the U.S. government shutdown drags on, MRB says it might just be what the Federal Reserve needs to justify deeper rate cuts as policymakers are left “flying blind” without official data and forced to err on the side of caution.
“Fed policy will err on the dovish side as long as reliable employment data are unavailable, and the state of the labor market remains uncertain,” MRB Partners said in a recent note.
The shutdown, which has delayed releases of jobs and inflation data, means the usual signposts for monetary policy are missing, making it “akin to flying blind” for the Fed. MRB Partners expects that “the Fed is certain to cut the policy rate again at next week’s meeting,” and warns that if the shutdown drags into November, another cut is likely in December.
“If the shutdown extends into November and prolongs the data freeze, then the Fed will most likely cut the policy rate in December as well," it added.
Alternative data, like private sector payroll and pricing reports, meanwhile, show mixed signals.
The ADP employment report points to net job losses in September, while the Revelio Labs survey shows a pickup in hiring. But MRB Partners cautions that these datasets aren’t substitutes for the official government numbers. “Privately produced indicators... have given somewhat mixed signals on the labor market recently," MRB said.
As long as Washington’s shutdown keeps markets in the dark, Fed rate cuts will remain the safe bet, regardless of any other signs of strength lurking in the economy.