Federal Reserve. The government shutdown has created a data blackout that is now complicating the Fed’s path to a potential December rate cut. In the short term, missing monthly government reports makes the committee rely more on private indicators and Fed anecdotes. Over the longer term, the split among policymakers could alter the pace of policy easing and influence market expectations in the US, Europe and Asia. This is not the first time the Fed has leaned on nontraditional data, and the comparison to the pandemic period is timely for context as markets weigh near-term signals and longer run inflation risks.

Why the data gap matters for December

The core debate is simple. Some Fed officials prefer to slow and gather more information. Others argue that the absence of government reports should not halt the process of cutting rates that began in September. Chair Jerome Powell framed the issue as a possibility that the data fog could make the Fed more cautious. Governor Christopher Waller pushed back strongly, saying the fog should not mean stopping the easing campaign.

Private sector indicators and anecdotal reporting are filling part of the void. San Francisco Fed president Mary Daly noted three pillars of information: government releases, private sector measures, and Fed-sourced anecdotes from conversations with businesses. Only the government pillar is impaired right now, she said, so the remaining pillars remain informative. Governor Lisa Cook pointed out that during the pandemic the Fed used nontraditional indicators such as restaurant reservation and mobility data as useful benchmarks.

Historically, the Fed has faced data interruptions before. The pandemic forced a heavier reliance on private data, and the committee adjusted policy rapidly when the public signals were clear. That precedent matters now because it shows both the usefulness and the limits of nontraditional measures. The disagreement among officials is as much about weighing upside and downside risks as it is about the quality of available information.

Market implications for the coming trading session

Expect volatility in the next trading session as markets price the odds of a December cut with greater uncertainty. US rate futures will be sensitive to any fresh Fedspeak and to private data releases that arrive to replace missing government reports. Short-term Treasury yields may trade erratically as traders reassess the path of policy. Equity sectors that are rate sensitive, particularly growth and technology names, could react to small changes in market-implied policy rates. Financials may respond differently if traders push out or pull forward rate-cut expectations.

Currency markets will likely show safe-haven flows if the data fog increases perceived policy risk. The US dollar could strengthen if investors conclude the Fed will act more slowly. Meanwhile Asian and European currency pairs will track global rate expectations as well as local growth signals. Commodity prices have a dual sensitivity. Oil and industrial metals monitor real activity indicators, while gold reacts to shifts in real rates and risk sentiment. Energy names mentioned in the newsletter, including bp NYSE:BP, may be driven more by fundamental supply signals than by Fed commentary in the very short term.

Liquidity can be thinner during days when headline risk drives trading. Options markets may price in elevated implied volatility. Traders and asset managers will likely use cross-asset cues to infer the policy tilt when fresh official data are missing. That will make the early session particularly important for setting the directional tone for the day.

How bonds, stocks and FX may trade

Bonds will be the primary market for signaling policy probability. If the Fed leans toward caution, front-end yields could move lower as traders lift the chance of later cuts. Conversely, if officials emphasize persistence of inflation and the need to continue easing only gradually, short-dated yields may rise. The long end of the curve will continue to price in growth expectations and real rate dynamics, so steepening or flattening moves will depend on how investors reconcile growth signals with inflation momentum.

Equities have a two-way sensitivity to the Fed story. A clearer path to cuts tends to boost rate-sensitive sectors. However, the hawkish wing of the committee has already signaled wariness about cutting too fast while inflation remains high. That nuance is likely to create intra-day rotation between cyclical and defensive sectors. European and Asian equity markets will follow the US lead while also reacting to local macro news and central bank commentary in those regions.

FX traders will focus on relative policy expectations. If the Fed adopts caution, the dollar may gain. If the Fed signals readiness to cut without delay, the dollar could weaken and emerging market currencies might get relief. Watch crosses that have historically reacted to rate differential moves, such as dollar-yen and dollar-euro, for early clues.

What to watch this week

With the government shutdown constraining official releases, market participants will parse private indicators and any Fed commentary for additional color. Look for consumer sentiment proxies, payroll estimates from private firms, spending data from card processors, and high-frequency measures of activity. Fed speakers will be especially important for clarifying how the committee plans to treat missing data at upcoming meetings.

Key names include Chair Powell and the officials who have publicly weighed in on the debate. Their remarks could tip the balance in market-implied policy odds. In addition, domestic macro surprises that escape the shutdown will be amplified by the absence of regular monthly reports. International data will also matter, because growth or consumer activity surprises overseas can influence US rate expectations through risk appetite and capital flows.

Finally, monitor liquidity and volatility metrics early in the session. Elevated moves in rates or currencies can produce spillovers into credit and equities. Meanwhile, corporate news and sector-specific developments, including energy fundamentals, will remain important for individual stocks and sectors regardless of the Fed’s immediate messaging.

This market preview is informational and not financial advice. It aims to summarize key themes for the coming trading session while explaining why the data blackout is material for policy and markets both now and over the near term.