Oct. 3, 2025: It’s day 3 of the government shutdown, and I am out of food and running low on water – and I am not sure how long my generator, fuel supplies, and ammo will last…
Or not.
I flew from DFW to SFO yesterday, and the airports were packed and running perfectly – and everyone was in good spirits.
And that is a good illustration of how the entire economy is responding to the shutdown so far.
The reason I know this for sure is because interest rates are marginally higher.
If the world were concerned about the government shutdown adversely impacting the economy, interest rates would be falling.
This is because bond investors focus on economic growth prospects, as I often mention, and they’d likely flee from stocks to the safety of bonds if they thought the government shutdown would be impactful.
This is the case too when almost 60% of betters on the Kalshi betting site believe the shutdown will last over 15 days.
If one were to believe the “Wisdom of Crowds” theory, one might think that a great portion of what the Federal Government does is unnecessary, as well as too expensive.
Some of those 750,000 furloughed (or potentially furloughed) government employees are probably wishing that rates would fall…
What Do We Do When No Government Data Is Being Released?
One of the concerns regarding the shutdown involves the lack of data releases by the Federal Government.
This is particularly the case when it comes to the Bureau of Labor Statistics (BLS), as the BLS releases inflation and employment reports that often move the markets significantly.
The mortgage industry, in particular, wants these reports, as it hopes for cool inflation and a soft labor market reports to further bring down rates.
So – what will we do, and can rates still fall?
A. The reports are increasingly unreliable, as we’ve seen time and again over the last few years. As a result, investors now rely on them less. In fact, Barry Habib had a long diatribe in his paywall video today about how ridiculously flawed both the employment and inflation reports are.
B. Analyst Ed Dowd reminded us today to watch 3-month Treasury Bill yields if we want to see what bond investors are seeing when it comes to the economy. This is a more accurate indicator than the BLS in any case. So far, 3-month yields are holding relatively steady, but if they start to fall sharply, rest assured that bond investors are seeing weaknesses somewhere.
