Government shutdown leaves Fed flying blind on jobs data

The Federal Reserve is facing a severe data blackout as the United States government shutdown, now the longest in history, halts the release of key economic indicators, including two consecutive monthly jobs reports, complicating decisions on future interest rate moves.

The US central bank has been bracing for one of the most important decisions of the year, but it lacks access to key economic data that it typically uses to guide its interest rate policy. The extended shutdown has left investors in the dark weeks ahead of a meeting where they will decide whether to raise borrowing costs.

The government has already missed publishing two monthly employment reports. Now, the October consumer price index (CPI), due out this week, is also at risk. The Bureau of Labour Statistics has ceased in-person data collection. Officials and analysts say the agency may not release the October CPI at all.

This compounds the uncertainty at an already deeply uncertain time of a sharply divided Fed. Some policymakers argue that the economy is slowing and requires additional support. Others fear another spike in inflation if interest rates are cut too quickly. Without timely statistics, those disagreements may be more difficult to resolve.

Fed officials consider next rate move but say key data is missing

The December meeting of the Fed was always likely to be contentious. The central bank lowered interest rates in October, although Fed Chair Jerome Powell said another rate cut was not a certainty. Before they could make their next decision, policymakers wanted fresh evidence on inflation and hiring trends—data they now may not receive in time.

With that evidence now absent, private payroll reports and hiring numbers from companies such as ADP and Indeed are filling in the gaps in labour market information. However, other measures of inflation are narrower. October inflation could have cooled to about 3%, the same as September, according to a “nowcast” model by the Cleveland Fed. However, models are estimates, not comprehensive surveys.

Economists warn that processing delays mean that even if the shutdown were to end quickly, both the October and November inflation reports may not be ready in time for the December vote. That would leave the Fed to decide its next move with no fresh federal economic data.

Some analysts said that if the October CPI data had already been released, it might have bolstered the case for a rate cut. Without that information, officials concerned about inflation may prefer to hold off.

Markets wait for clues as policymakers take to the stage

Financial markets still have a December rate cut priced in, though that expectation is fading. Investors are watching remarks from key Fed officials—including New York Fed President John Williams and Atlanta Fed President Raphael Bostic—for clues about how missing data is shaping in-house thinking.

There are also broader shifts in the global policy context. In Canada, the central bank will provide a full explanation for why interest rates were “about the right level” following its last cut.

New figures on industrial output and retail spending in China will be closely watched for any signs of a rebound. At the same time, the UK releases wage and growth data amid sluggish economic momentum. Japan and Sweden will also release minutes from recent policy meetings, which could offer clues on how global officials are balancing risks associated with inflation against those of slowing demand. However, in the United States, policymakers are operating without a clear understanding.

The shutdown is not only bringing the flow of data to a standstill; it’s also disrupting data collection. And even once the government reopens, economists expect delays, revisions, and gaps.

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