US govt shutdown fallout drives market, policy uncertainty

Investors have already taken measures to reduce their risk exposure ahead of expected short-term volatility, in reaction to the US Government’s first shutdown in six years over a budget dispute.

According to Blerina Uruci, Chief U.S. Economist at T. Rowe Price, the shutdown’s ripple effect will spread to monetary policy as both the US Federal Reserve and investors are left to guess the data that will inform future rate decisions.

“Markets are bracing for the potential delay of critical economic data, including October 3 payrolls report. That is a problem for a data-dependent Fed, especially as investors try to gauge the timing and likelihood of future rate cuts,” Uruci said.

“The Fed may be forced to rely on less comprehensive indicators like ADP and jobless claims, which could muddy the policy picture. The lack of clarity could fuel short-term volatility and make it harder for markets to position with confidence.

“Consensus expects payrolls around 50,000, with some upside risk from seasonal quirks. But the broader trend remains soft, with job growth likely to stay below 100,000 for the year — supporting the view that the labour market is cooling,” she said.

“In light of this uncertainty, some investors are already looking to reduce risk as the outlook becomes harder to navigate.”