The Fed heads into October meeting in the dark. The government shutdown, now in its fourth week, has prevented most releases Key economic data that the central bank relies on to make its own rate decisions.
The Federal Open Market Committee (FOMC) will meet on Tuesday and Wednesday, as it is independently funded and operates outside the rest of the federal government. Last month, the Fed made it First cut of 2025 – By 25 basis points – bringing the federal funds rate to 4.00% -4.25%. The Fed is expected to cut rates by a quarter of a percentage point to 3.75%-4.00% at its October 28-29 meeting. But it will do so without a full picture of how the economy will perform in September.
The rate cut is important for consumers, lenders and savers. The Fed’s actions affect how banks and lenders set interest rates on their products. A rate cut means loans will be cheaper for borrowers, but the return on savings won’t be as good.
The Fed collects several sets of official data – such as labor, growth, retail sales and more Inflation – Guiding his decisions. But when the government shut down on October 1, it meant key reports would not be released. One exception is the Consumer Price Index (CPI), which was released on Friday. Instead of most of its reports, the central bank will have to look largely outside government for indicators of what the economy will look like in September.
Elizabeth TenantNerdWallet’s senior economist, says the FOMC already has its work cut out for it due to conflicting risk, policy shifts and pressure from the White House. “Adding a federal government shutdown to the mix will make this difficult task even more difficult. Not only does a shutdown mean the absence of federal data, it is more likely to have an economic impact.”
What will the Fed consider?
On October 14, Fed Chair Jerome Powell said at an event in Philadelphia hosted by the National Association for Business Economics that the central bank has “a wide variety of public and private sector data” available, along with insights from reserve banks around the country.
“Based on the data we have, it’s fair to say that the outlook for employment and inflation hasn’t changed much since the September meeting four weeks ago,” Powell said in prepared remarks. “However, data available prior to the shutdown suggest that economic activity may have picked up at a much stronger pace than expected.”
At its last meeting, the FOMC signaled that its cut was more about protecting the job market than fighting inflation. The Fed has the dual mandate of promoting maximum employment and keeping prices stable.
But the feds won’t have much of a routine Labor data This time around, the jobs report on October 3 was not released by the Bureau of Labor Statistics (BLS) on October 3. The same is true of weekly jobless claims reports from the Department of Labor. The Fed has the Job Openings and Labor Turnover Summary (JOLTS) in the most recent labor report, which showed data for August and was released by SLS just before the shutdown on September 30.
“The labor market has cooled and is likely still sluggish,” Renter says. “But inflation remains high and risks increase. This puts both sides of the Fed’s dual mandate at odds, and they are left to decide which risk is more pressing in the absence of federal economic data.”
The FOMC may look to a number of private data sources as an alternative, such as the ADP National Employment Report, last released on October 1, for labor data. Private economic indicators can help fill the gap, but they’re not perfect stand-ins for government reports because they track data differently and don’t cover the same ground. Still, they are what the feds have to work with.
When it comes to inflation, the Fed will have one key dataset to work with: the CPI for September, which was released Friday (later than scheduled) by the Bureau of Economic Analysis. It showed moderate inflation – 0.3 percent month-on-month growth compared to 0.4 percent in August. On an annual basis, inflation rose 3%, compared to 2.4% in September 2024.
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