The current government shutdown is creating unprecedented delays in publishing essential economic data. This development has alarmed financial market pundits and Federal Reserve Board members alike, troubled at its effects on the conduct of monetary policy. That’s particularly important to note as September’s jobs report has not yet been released. With the shutdown as yet unresolved, the October jobs report, normally due out November 7, is unlikely to appear. Furthermore, the release of the October Consumer Price Index (CPI), scheduled for November 13, faces suspension as long as the shutdown persists.
During this historically consequential time, the Federal Reserve is becoming increasingly delayed. It signaled most recently that interest rate cuts might soon be on the way. Jerome Powell, the Fed Chair, is slated to hold a post-meeting news conference on Wednesday at 2:30 p.m. ET, where he may address the situation and its impact on future monetary policy decisions. The Fed revises its economic projections at the meetings held in between their monetary policy meetings, with the next updates due in December.
Central bankers made plain their preparedness to contemplate rate cuts for the first time since December. This move is just another sign of their escalating fears over the solidity of the labor market. As Chicago Fed President Austan Goolsbee recently underscored, the labor market is beginning to show signs of deceleration. He noted that data so far in August suggests a looming risk of steep job growth slowdown.
“And if you’re not going to get the data, it’s just that much harder,” – Chicago Fed President Austan Goolsbee
In fact, financial markets, as per the CME FedWatch Tool, are already pricing in a rate cut in December. In his October 14 speech, Powell didn’t rule out more cuts, pointing to a more dovish path ahead. Economic uncertainty Fed Governor Christopher Waller underscored the need for measured decision-making, given uncertainty still surrounding the economy.
“You don’t want to make a mistake, so the way to avoid that is to go cautiously or carefully and do [a quarter-point cut], wait and see what happens, and then you can get a better idea of what to do,” – Fed Governor Christopher Waller
With the ongoing government shutdown, we are facing a data blackout. This smoke and mirrors act hides the real story about how well (or not) the U.S. economy is doing. This lack of information complicates the Fed’s ability to make informed decisions about interest rates and raises questions about their responsiveness to changing economic conditions.
The shutdown came on the eve of the release of the new Consumer Price Index data for September. It can provide very useful hints about the direction of inflation. As we’ve said, without regular follow-up data releases, central bankers are left to guess the extent of economic destruction.
Kathy Bostjancic, chief economist at Nationwide, pointed to uncertainty when it comes to government data. She thinks this uncertainty might make the Fed more conservative on the timing of cuts than it otherwise would be.
“The Fed could conclude there’s so much uncertainty because of the lack of government data that it takes it slower with cutting rates than it normally would,” – Kathy Bostjancic
Even as the former President Donald Trump dramatically continues to escalate the use of the shutdown to defund Democratic priorities. He is also deeply committed to cutting thousands of federal jobs. His calls for aggressive rate cuts from the Fed reflect his broader strategy to stimulate economic growth amid political challenges.