Inside the longer lasting impacts of the government shutdown

Key Concepts

• Government Shutdown Fallout: The economic and data-related consequences of the longest government shutdown in history.
• Data Desert: The period of delayed economic data releases due to the shutdown, impacting the Federal Reserve's decision-making.
• Federal Reserve (Fed) Rate Cut: The possibility of interest rate reductions by the Fed, influenced by economic data.
• Consumption and Growth Headwinds: Factors that could slow down economic activity and employment.
• Election Takeaways: Insights for investors from recent election results, particularly regarding voter sentiment and party control.
• Midterm Elections: The upcoming elections and their potential impact on House control.
• Supreme Court Cases: Significant legal challenges impacting tariffs and voting rights.
• International Emergency Economic Powers Act (IEEPA): A statute used for imposing tariffs, under scrutiny by the Supreme Court.
• Voting Rights Act: Legislation concerning voting rights, with a case potentially impacting redistricting.
• Gerrymandering: The manipulation of electoral district boundaries.
• Kevin House: A New York City homeless shelter and workforce training organization.

Government Shutdown and Economic Data

The longest government shutdown in history has left a lasting impact, primarily concerning the data desert. This refers to the significant delay in the release of crucial economic data, which will make the Federal Reserve's (Fed) December decision-making process very difficult. Specifically, the September jobs report may not be available until just before Thanksgiving, and the October jobs report and likely the Consumer Price Index (CPI) will also be missing.

Previously, the market was split 50/50 on the likelihood of a Fed rate cut in December. However, with this lack of data, the odds of no Fed cut are likely to increase.

Beyond the data, the shutdown also contributes to a lack of consumption and growth headwinds to employment. While most of these effects are expected to be transitory, they could make the anticipated slower growth quarter even more pronounced.

Election Takeaways for Investors

Recent election results offer several insights for investors:

• Voter Discomfort with Unified Control: Voters appear uncomfortable with one party having complete control of the government, regardless of whether it's Democrats or Republicans. This was evident in off-cycle elections, suggesting a potential "protest vote." This could be a preview for the upcoming midterm elections in November.
• Democratic Party's Internal Debate: The elections highlight the ongoing search for the "soul of the Democratic Party," with a tension between progressive voices like Zohran Mamdani and more centrist approaches.
• Midterm Election Implications: The midterms are crucial for House control, which Republicans currently hold by a narrow margin of three votes. Historically, the party out of power tends to gain seats in midterms. If the shutdown prolongs, it might further embolden Republicans in the House.

Supreme Court Cases and Their Impact

Two significant Supreme Court cases are currently being closely watched:

• Tariffs Case: Despite the Supreme Court's general deference to President Trump, justices are asking tough questions regarding tariffs imposed under the International Emergency Economic Powers Act (IEEPA). If the Court finds that the President violated the IEEPA, it could lead to:

  • A rollback of half of the tariffs imposed.
  • The Treasury having to repay collected revenue.
  • A renewed focus on deficits.
  • A potential steepening of the yield curve, as investors become concerned about deficits again. However, even if the President is found to have violated the IEEPA, he still possesses numerous other tools (e.g., Section 31, Section 32) to advance his trade policy agenda.

• Voting Rights Case (Gerrymandering): This case is considered a major story, potentially more significant than the tariffs case. If the Voting Rights Act is found to be in violation or no longer standing, it could lead to significant redistricting, particularly in the South. This would structurally benefit Republicans, potentially allowing them to win more House seats and maintain Republican House control for longer-term cycles, not just in 2026.

Community Engagement

Libby Cantrill will be participating in an event next week, sleeping outside in Times Square on behalf of Kevin House. Kevin House is described as the largest used shelter in New York City, providing emergency shelter, work training, and workforce development, including parental support. This is highlighted as a very important nonprofit.

Synthesis/Conclusion

The government shutdown has created a significant "data desert," complicating the Fed's decision on interest rates and potentially slowing economic growth. Election results indicate voter unease with single-party control and highlight internal Democratic Party debates, with implications for the upcoming midterms. Crucially, two Supreme Court cases concerning tariffs and voting rights hold the potential for substantial economic and political shifts, with the voting rights case potentially reshaping the landscape of House control for years to come. The discussion also underscores the importance of supporting vital community organizations like Kevin House.