Government Shutdown Data Disruption and Inflation's Role in 2026 Fed Rate Cut Expectations

This analysis is based on a YouTube interview with Marta Norton of Empower [1], published on December 23, 2025, where she discussed the impact of the government shutdown on economic data availability and Federal Reserve (Fed) policy-making. Norton highlighted that data disruption has left investors uncertain about which economic indicators the Fed will prioritize, emphasizing inflation as the most critical metric to monitor—with continued disinflation potentially leading to more 2026 rate cuts than currently expected.

On the same day as Norton’s comments, the delayed Q3 2025 GDP report was released, showing 4.3% annualized growth (far exceeding the 3.2% consensus estimate) driven by strong consumer spending [2]. While this initially reduced expectations for early 2026 rate cuts (CME FedWatch Tool showed January cut odds falling from 18% to 13% [3][4]), U.S. equity indices (S&P 500 +0.54%, NASDAQ +0.66%, Dow +0.25%) closed higher, reflecting the report’s outdated nature due to the 43-day shutdown delay [0][2][9]. In fixed income, shorter-dated Treasury yields rose post-GDP release, though 10-year yields were mixed [9]. Commodities saw gold ($4,475/oz) and silver ($72.70/oz) hit new record highs, fueled by rate cut expectations, geopolitical concerns, and a weaker U.S. dollar [3][5][6]. The dollar weakened by ~0.2% (DXY index), indicating market focus remains on longer-term rate cut prospects rather than backward-looking GDP data [5][8].

1. Policy Uncertainty from Data Disruption
   : The government shutdown has delayed critical economic data (e.g., CPI, non-farm payrolls), complicating the Fed’s decision-making and increasing market volatility risks [1][7].
2. Inflation Overrides GDP in Rate Expectations
   : Despite the strong Q3 GDP report, markets discounted its impact due to its outdated release, aligning with Norton’s focus on inflation as the primary driver of 2026 rate cuts [1][2][4].
3. Holiday Trading Amplifies Volatility
   : Thin trading volumes during the holiday period exacerbated price movements, including the initial GDP-related yield spike and subsequent market recovery [10].
4. Commodity Strength Amid Dollar Weakness
   : Record gold and silver prices reflect dual catalysts—rate cut expectations and a weakening dollar—which could persist if inflation trends lower [3][5][6].

• Risks
  :
  • Data disruption may continue to delay critical economic indicators, leading to erratic market reactions as investors and the Fed operate with incomplete information [1][7].
  • The outdated Q3 GDP report could misinform policy decisions or market expectations if not contextualized [2][9].
  • If inflation fails to fall as Norton predicted, rate cut expectations could shift sharply, impacting asset prices across equities, fixed income, and commodities [1][4].
• Opportunities
  :
  • Sustained disinflation could lead to more 2026 rate cuts than expected, potentially boosting equities by reducing borrowing costs [1][4].
  • A weakening dollar and ongoing rate cut expectations may continue to support gold and silver prices [3][5][8].

Marta Norton of Empower identified inflation as the critical metric for 2026 Fed rate cut expectations, amid government shutdown-related data disruption that has clouded the Fed’s policy inputs [1]. The delayed Q3 2025 GDP report (4.3% growth vs. 3.2% estimate) initially reduced early rate cut odds but was discounted due to its outdated nature, with equities closing higher and commodities hitting record highs [0][2][3][5]. Market focus remains on inflation data (currently delayed) and Fed communications clarifying data priorities. Decision-makers should monitor the release of delayed inflation/labor data, Fed statements, and changes in CME FedWatch Tool probabilities.