Fed Is Flying Blind Due to Shutdown, Slok Says

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Transcript

00:00I do want to get the government shutdown into this conversation because markets so far don't

00:04look that concerned. We're not getting the economic data that we love to dig into, but

00:08I am curious what this means for the Federal Reserve. We have a policy meeting coming up on

00:14the 29th. It looks like we're not going to get the CPI release that we were, or the inflation

00:19release we're expecting next week. We know the jobs market has been delayed when it comes to

00:24that official NFP release. When it comes to making policy, it feels like it just got a lot harder to

00:29do. Well, with this shutdown, the Fed really is flying blind. And the consequence, of course,

00:34of that is that they do need to look at all these other data sources. There are other things to look

00:38at, but none of these can be mapped directly one-to-one into the government jobs data. So

00:44that's why both on CPI and on non-farm payrolls and a broad range of other indicators when we look at

00:49retail sales, durable goods, we just don't know literally at the meeting on October the 29th

00:54what truly has happened to the economy since the meeting that we had in September. So this is a

00:59very, very important conclusion. There's even been some debate around, okay, but how do you

01:02then communicate? Do you start talking about the private sector indicators? There's a broad range

01:07of things you can begin to look at. What do you put weight on? That debate at the press conference

01:11will become very, very important because if he begins to put weight on consumption, is it certain

01:16inflation indicators? Is it certain labor market indicators? That will be very revealing for what

01:21they think is going on truly in the economy. So that's why it is a very problematic situation to make a

01:26decision on the back of very, very weak information. And just under a minute left here, but I also

01:32wonder about the different elements of this shutdown where possibly we're not just talking about

01:36furloughs, we're talking about layoffs, we're talking about government workers potentially not

01:40getting back pay. What does that mean when you think about the long-term effects of this shutdown?

01:45Yeah, because that then implies that suddenly we could have that there could be weaker labor demand

01:49and maybe it could be that the labor market now also starts to weaken because government jobs

01:52are going to weaken further. So it's just making the picture incredibly complex for the FOMC.

01:58And on top of that, we already had some dissents at the last meeting. So now they need to debate,

02:02well, what is the true state of the economy? And most importantly, how do we set and calibrate

02:07the Fed funds rate in response to the data that we think that we have?