The government shutdown has disrupted inflation data, prompting a cautious, data-driven stance and a slower pace of rate cuts from the Fed.

Chair Powell has signaled a similar cautious approach, advocating slower rate reductions due to the absence of timely government statistics.

With limited inflation signals, the Chicago Fed chief emphasizes heightened caution before policy moves.

Beyond near-term data gaps, there is cautious optimism that AI could boost productivity and income growth, while acknowledging potential short-term job displacement.

Inflation remains above target, with core measures around 3.6% and services inflation near 4%, suggesting tariff-driven pressures may be easing but not resolved.

The labor market has stayed steady, though payrolls show vulnerability to demographic shifts, creating uncertainty about future hiring and layoffs amid the shutdown.

Stagflation risks would complicate policy, since weak growth and high inflation do not fit a simple playbook.

Policy decisions balance inflation monitoring with labor-market signals, relying on alternative data while awaiting resumed inflation signals post-shutdown.

If the job market deteriorates, that weakness should show up quickly in the data, guiding policy responses.

Restoring normal inflation data is crucial to accurately gauge tariff impacts and overall price dynamics.

The neutral or terminal rate is expected to settle well below current levels in the medium term, warranting cautious action in uncertain times.

The lack of timely inflation reports complicates trend assessment, as recent inflation has moved higher.