WASHINGTON (TNND) — The Federal Reserve, in the middle of a highly anticipated series of interest rate cuts, is without its usual roadmap because of the government shutdown.
Ahead of the central bankers’ next decision on interest rates on October 29, they’re without the bulk of the data needed to guide them to fulfill their dual mandate: maximum employment and price stability.
“It’s deeply in our culture to do our work based on the incoming data and never consider anything else,” Fed Chair Jerome Powell told reporters 13 days before the shutdown.
The Bureau of Labor Statistics was scheduled to release the September jobs report last Friday, but that was indefinitely postponed due to thousands of bureau staff being furloughed. If nothing changes on Capitol Hill, two key inflation reports scheduled for next week will likely be delayed, too.
“As time goes by it will get worse. There’s no question that the best jobs data in the world comes from the Bureau of Labor Statistics. We need that data, we want that data,” Chicago Fed President Austan Goolsbee said last week, noting that even private sector reports rely on data from the bureau.
Clarity on the state of the economy is vital in this moment: Newly released minutes from the Fed’s September meeting revealed some central bankers “noted that progress toward the Committee’s 2 percent inflation objective had stalled this year as inflation readings increased and expressed concern that longer-term inflation expectations may rise if inflation does not return to its objective in a timely manner.”
“This uptick of inflation that we’ve been seeing, coupled with the jobs, payroll jobs numbers deteriorating, has put the central bank in a bit of a sticky spot where you’re getting deterioration of both sides of the mandate at the same time,” Goolsbee said.
ADP’s latest private payroll data showed the economy lost 32,000 jobs in September. Among goods sectors, construction and manufacturing lost the most steam, shedding 5,000 and 2,000 jobs, respectively.
The Fed is still widely expected to cut the federal funds rate by a quarter percentage point at the end of this month and once more by the end of the year. J.P. Morgan economists predict that rate cuts in 2026 could be jeopardized if the shutdown proves to be a lengthy one.
J.P. Morgan’s head of global rates strategy, Jay Barry, said, “It’s going to be challenging to discern what this means for the direction of Fed policy. If the shutdown is lengthier, it could muddy the waters about how markets price the likelihood of any rate cuts past December.”
