Back in business

After 43 days, the longest government shutdown in US history came to an end last Wednesday. This means a more consistent flow of economic data is on the horizon, though it will likely still take a few weeks to get everything back in running order. A return to normalcy should be welcome news for a Federal Reserve that has potentially found itself at a crossroads.

The September dot plot signaled two additional rate cuts by year-end. October’s cut came as expected, but December now seems more in doubt. Markets have assigned a nearly 50/50 probability to a rate cate next month; a view reflected in the latest round of Fed commentary last week. Some officials have advocated for patience, citing a labor market that’s largely unchanged from the summer and inflation that’s still above target. However, not all agree. Governor Stephen Miran, for example, still argues in favor of a 50 basis-point cut as he feels current policy is too restrictive.

Spots of weakness within the “K shaped” economy continue to come forward. According to Fitch, a credit rating agency, the percentage of subprime auto borrowers that were at least 60 days behind on payments reached a record high last month, dating back to 1993. At the same time, prime borrower delinquencies have remained fairly stable. More broadly on the labor front, third party employment data pointed to a continued softening as payroll processor ADP estimates the private sector was shedding an average 11,250 jobs per week in the four weeks through October 25. This coincides with a few more high-profile layoff announcements last week.