Fed faces murky path as tariffs start to bite

Federal Reserve Chair Jerome Powell is heading into next week’s policy meeting with no reliable data left to guide him.

September’s inflation report was the last clear signal he got before the government shutdown froze everything, though that one CPI report (softer shelter, cooler core services, and a hint of relief in prices) was exactly the calm the Fed wanted before stepping into the dark.

But that calm will not last. RSM’s chief economist Joe Brusuelas said this is “likely to be the last solid quality report we get until probably early next spring.” The shutdown has crippled agencies like the Bureau of Labor Statistics, leaving the Fed with estimates instead of real figures.

“The BLS is going to be imputing—or rather guessing—at a lot of the estimates they’re making,” Joe added. “So in many respects, this is the last hard data that I’m going to trust probably until early next spring.”

Fed faces murky path as tariffs start to bite

Even though the September inflation print gave the Fed some breathing room, the report also revealed early signs of tariff-related price pressures. Gargi Chaudhuri, chief investment strategist at BlackRock, said, “Goods prices are firming again amid tariff pressures.”

Things like apparel, footwear, and household furnishings already showed early signs of cost pass-through, and economists from BNP Paribas and Goldman Sachs think this trend will become more visible by early 2026 as companies begin passing costs directly to consumers.

Steven Juneau, an economist at Bank of America, said Trump’s tariffs will continue to be “a source of goods price inflation” over the next few quarters as inventories thin out and margins shrink.

Lower-income Americans are struggling to keep up with everyday expenses while wealthier households, buoyed by stock market gains, are still spending freely. That imbalance keeps consumption stable, but it hides deep cracks beneath the surface. David Russell, global head of market strategy at TradeStation, said, “Inflation might not be slowing, but it’s not surprising to the upside anymore.”

Powell and his colleagues will have to rely on private surveys and corporate reports to gauge where the economy stands. The Fed’s traditional compass (employment, CPI, and spending data) is gone for now.

Fed expected to cut rates as Trump urges faster action

The Consumer Price Index (CPI) release on October 15 came through only because the Social Security Administration needed it to calculate cost-of-living adjustments, or COLAs, for benefit checks. Otherwise, the federal shutdown would have delayed it too. The CPI data now serves as the final piece of evidence before the Fed’s rate decision next week. The central bank’s inflation goal remains 2%, a level last seen in February 2021.

Art Hogan, chief market strategist at B. Riley Wealth, said, “This report will clearly keep the Fed on track to cut rates.” He added that policymakers are more focused on labor data and defending their full-employment mandate, even with core CPI well above target. Markets are betting on a 25-basis-point cut, taking the benchmark range from 4% to 4.25%, with traders expecting another move in December.

But what happens after that is unclear. Economists still worry that President Donald Trump’s tariffs could trigger another wave of inflation. The same report showed tariff-sensitive apparel prices up 0.7% in September and durable goods rising 0.3%. Job growth remains sluggish, though layoffs are still relatively low. Policymakers are now trying to balance those opposing forces without reliable data.

Powell has repeatedly said the Fed will stay cautious in cutting rates too fast. But Trump, now back in the White House, insists inflation is “no longer a problem” and that the Fed should be “cutting aggressively.” That puts political pressure right at the Fed’s doorstep as it meets in the middle of a data vacuum.

For now, the central bank is left with one clean inflation report, a darkened data pipeline, and a government that’s not sending updates.

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