In the dark

The US government shutdown continued last week, and with it, the pause on most economic data releases. Markets didn’t seem to mind the quiet. Through the first full week of the shutdown, US Treasury yields were little changed and the S&P 500 reached a record high. That is, until tariff-related headlines provided some noise on Friday.

Given the information vacuum, investors will look to third quarter corporate earnings. During its most recent release last week, Delta Air Lines offered a relatively upbeat view of the consumer, or at least those willing and able to pay for more expensive tickets. The airline noted a broad improvement in sales trends over the past six weeks, with demand still being led by premium cabins. This is the latest data point to reinforce the strength of the higher-end US consumer, though competing headlines continue to suggest growing struggles on the lower end. The corporate-earnings season kicks off in earnest this week and should help provide a fuller picture of the health of the US consumer.

In commentary last week, Federal Reserve officials voiced concerns over dueling threats to the Fed’s mandate. Fed governor Michael Barr stressed the need for caution with respect to rate cuts, citing the stubborn inflationary pressures. He noted that the September Summary of Economic Projections revealed many officials think inflation won’t fall to its 2% target before the end of 2027, adding “two more years could be a long time.” On the other hand, John Williams, President of the New York Fed, emphasized the importance of supporting the labor market from further cracks and believes the FOMC has room to do so. The lack of data only adds to the uncertainty facing the Fed. Fortunately, this month’s CPI data is expected to be released whether or not the federal government is operating in full.