Seema Shah of Principal Asset Management discusses the hold up in the Bureau of Labor Statistics' readout of nonfarm payrolls data and how it could affect traders, economists and central bankers.

Washington

The US government shutdown has resulted in delays to the release of important labor market data, making it more difficult for traders, economists, and policymakers to assess the state of the economy. The Federal Reserve is already grappling with complex labor market dynamics, including the effects of technology and supply changes, and the lack of timely data adds further uncertainty.

Despite these challenges, broad economic indicators suggest that the US economy remains stable, although there are signs of a slowdown in labor demand. Inflation appears contained for now, but the situation remains fluid, and the Federal Reserve is expected to proceed cautiously with potential rate cuts, monitoring developments closely as the shutdown continues.

How to trade amid U.S. shutdown, jobs data delay

And how problematic is it actually for traders and markets, but also economists to understand exactly what the economy is looking at? Hi, thanks for having me on. I think at any time that you're not going to get data, it's going to be a tough time to try and navigate the market dynamics. I think it's probably even worse right now because there's been so much going on. The Federal Reserve, as we know, is already almost struggling with the muddiness of the labor market data given the various supply dynamics, even trying to consider how AI is coming in and maybe impacting the labor market. So this is unhelpful. It's going to be really important how long this extends for. Not in terms of the economic impact, but simply in terms of the data, because we feel like we can get to the October Fed meeting. We think that they are very likely to cut rates even without the near-term data. But of course, as you go beyond that, then they're getting into a very large gap without that kind of data. And then December starts to become, I guess, a more questionable affair. So what do you think we're seeing in the U.S. economy, especially when it comes to this fraught relationship between labor and inflation? Is it true that we shouldn't worry about inflation for the moment? I think that is to some extent. I mean, when we're looking at the broad economy, we're looking at all the various activity indicators. So aside from the labor market, things look okay. I mean, it's slowing. So we're not seeing an acceleration, but certainly, we're not talking about recessionary conditions. And then from a labor market perspective, the labor data, we can clearly see that there is a labor market demand slowdown and probably more so than what the labor supply dynamics are saying. So there is a slowdown in play. But together, what that means is that the inflation dynamics are probably less – I should say, the fundamentals are less important in terms of driving up the pressures. So we do think that right now inflation is almost contained, I'll be at that 3% level. But this isn't the end of the fight. And I think from the Fed's perspective, they're going to have to keep a really close eye. We know that from companies' perspectives, they maybe haven't been passing on price increases yet. But of course, as margin pressures become a little bit more impactful, then next year becomes a slightly different story. Sima, I mean, when you look at, for example, how much does it make more sense to go gradually? I don't know how many Fed cuts you're expecting, but why not go big and then see what happens? Well, I think the thing is, as we said, the data is making – you now have the shutdown stopping you from getting the labor market, the non-fund payrolls today. But overall, this is a picture where you have – it's a confusing one. You have an economic broad activity picture, which is fairly robust, but you have a labor market slowdown. You have supply dynamics. As I said, you've got the tech. In that kind of situation where you don't really know where you're going, you shouldn't really run headfirst at the door. You should be maybe treading along. So from our perspective, three cuts at least takes you towards neutral. And then it would make sense for the Fed to stop and almost appraise the situation, see if they have any better understanding of what's going on in the labor market. So we would expect to see a couple more rate cuts after – into 2026. But in terms of the magnitude, then you also have to consider the politicization of the Fed and what the makeup is going to be once Fed Chair Powell is out.

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Tokyo

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Jerusalem

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Manchester

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Sochi

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Chernihiv

Ukraine Invasion

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LaGuardia Airport

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Doha

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Breakdown