The U.S. government remains mired in a prolonged shutdown, stalling the release of critical economic data. For a Federal Reserve already grappling with its deepest divisions in years, the upcoming December policy meeting now faces the dilemma of making tough decisions in an information vacuum.
The latest development is the precarious status of the October CPI report, originally scheduled for release next week. According to reports, the U.S. Bureau of Labor Statistics (BLS) has not only delayed the report but also suspended offline data collection. Markets increasingly believe the BLS may entirely scrap the October CPI release.
This follows delays in two monthly employment reports. The absence of official inflation and labor market data will further complicate and prolong the Fed’s internal debate on whether another rate cut is warranted in December.
While markets still lean toward a December cut, the lack of official data could give policymakers concerned about resurgent inflation ample justification to hold rates steady next month.
Consequently, with hard data missing, investors will turn to public remarks from several Fed officials next week—including John Williams, Raphael Bostic, Stephen Miran, and Alberto Musalem—for clues on the policy path.
**Data Void Intensifies Policy Dilemma** For a data-dependent Fed, the current situation is exceptionally challenging. Although policymakers had September’s CPI data before their last meeting, they lacked the latest employment report. Now, the absence of consecutive jobs reports and key inflation metrics is undermining the foundation for policy decisions.
After October’s rate cut, Fed Chair Jerome Powell emphasized that a December cut was not a foregone conclusion. For FOMC members focused on inflation reacceleration risks, the lack of official data may reinforce their stance to keep rates unchanged in December.
Even if the government reopens in the coming weeks, the Fed may only receive retroactively compiled data—raising questions about accuracy and timeliness. BNP Paribas notes that even if some data resumes, the schedule will lag severely.
**Alternative Metrics Fall Short** During this "blackout" of official data, markets aren’t entirely without references. Private-sector labor market reports are helping fill some gaps. However, for inflation, alternatives to government data are scarcer and less comprehensive.
For instance, the Cleveland Fed’s "nowcast" model suggests October’s CPI may mirror September’s unexpectedly low 3% year-over-year rise, with core CPI also at 3%. Yet, such proxies can’t fully replace the authority of official reports. Bloomberg Economics warns that even if the government reopens promptly, the BLS is unlikely to compile and process both October and November CPI reports before December’s FOMC meeting. Their analysts note, "October’s data could have greenlit a cut at the year’s final meeting," highlighting the decision-making cost of missing data.
**Shutdown Endgame Holds the Key** Looking ahead, the Fed’s December decision hinges heavily on when the shutdown ends and how much economic data can catch up.
Bank of America has modeled several scenarios outlining potential policy impacts:
1. **A "Stale" September Jobs Report**: If the government reopens by late November, markets might see September’s jobs data before the December meeting. BoA argues that even strong figures wouldn’t likely deter Powell from cutting, as they’d be viewed as outdated.
2. **Two Jobs Reports (September & October)**: A November restart allowing the BLS to release both reports by December would complicate matters. Steady unemployment at 4.3% coupled with robust activity data could make a "pause" plausible.
3. **Three Full Jobs Reports**: In the best-case scenario—an imminent reopening—the BLS could publish September, October, and November reports before December. BoA proposes a rule of thumb: November unemployment ≤4.3% = no cut; ≥4.5% (matching Fed projections) = cut; 4.4% = a "coin-flip" decision.
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