I was having a hard time guessing but figured out what you meant. It seems the bug is that the game starts SteamInput in In-Game Controls mode. The temporary fix is just to make a new action in your In-Game Controls scheme to change to Menu Controls.
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I don't have any spare buttons left so I just made a button chord using the start and select buttons to change the control mode. For anyone else attempting this, the specific action is in the Action Sets category. Thanks for the post, numbers fella.
Edit: Nevermind. After a half hour of trying to make it work, discovered mode shifts can't be button chords. Doing the above will change your scheme to Menu Controls in a game if you press the start button. Best to just use the mouse for now.