The shutdown hinders the Fed’s economic aid
The Federal Reserve was already confronting one of its most challenging struggles, navigating a changing economy amid a faltering labor market and persistent inflation. The government shutdown has intensified that struggle. The Fed heavily relies on official economic statistics collected and disseminated by the government to make determinations about its rate policy and other decisions aimed at helping the economy. The shutdown has effectively severed access to that data — from the unemployment rate to retail sales — since the beginning of October. With only one week remaining before the Fed’s upcoming decision on interest rates, officials find themselves navigating uncertain terrain as they evaluate the necessity for further support in the labor market. Recent data through August has revealed the slowest hiring rate since 2010, alongside increasing unemployment rates among young Americans and minorities. Policymakers face a new challenge as they confront an ongoing assault from the Trump administration on their autonomy, a persistent housing affordability crisis that the Fed is ill-equipped to resolve, the possible ramifications of AI, enduring inflation, ambiguity surrounding tariffs, and a deceleration in the job market.
Without government data, Fed officials have sought alternative sources to assess the labor market and consumer spending — two critical components of the US economy and central to the Fed’s dual mandate of balancing economic growth with price stability. The issue lies in the fact that government data is unequivocally regarded as the “gold standard” for measuring the world’s largest economy. The absence of it leaves the Fed’s decision making lacking in complete information. According to sources, the Fed may find itself with even less access to private employment data this time, following the termination of its data-sharing agreement with payroll software provider ADP in August. “The risk is that the Fed misjudges where the state of its dual mandate sits, whether inflation or the labor market is the bigger concern,” Michael Reynolds. The last occasion when Fed officials established monetary policy absent crucial economic data occurred during the 2018-2019 shutdown, when officials relied on data regarding card transactions and vehicle sales due to the unavailability of the Commerce Department’s monthly report on retail sales. “I wouldn’t call it a data drought,” John Williams stated. The Bureau of Labor Statistics is set to release the Consumer Price Index for September on Friday, having brought back staff to guarantee that the report serves as a foundation for Social Security’s annual cost-of-living adjustments. Nonetheless, this situation keeps the Fed uninformed about the actual condition and direction of the labor market, as private-sector figures cannot entirely substitute government data.
The Fed’s primary instrument — its key interest rate, which affects borrowing costs on a wider scale — is adept at either lowering or raising borrowing expenses depending on whether the Fed aims to curb inflation or enhance employment. However, it fails to address the “supply” aspect of the supply and demand equation, which perpetuates rising prices in certain regions, including the Northeast. Sales of previously owned homes have remained sluggish for the third consecutive year, with persistently elevated mortgage rates undoubtedly contributing to buyers staying on the sidelines, while a long-term housing shortage continues. “Sales of affordable homes are constrained by the lack of inventory,” stated Lawrence Yun, chief economist of the National Association of Realtors. President Donald Trump’s assertive efforts to transform global trade have compelled numerous businesses to pause their hiring plans as they anticipate unfolding developments, while others are exploring ways to integrate AI into operations. “The labor market has been frozen up because people are just having a hard time making decisions,” stated Laura Ullrich. “And AI is certainly having some impact on entry-level tech jobs.” The Fed’s rate cuts are expected to reduce borrowing costs, enabling companies to increase their workforce; however, that may not suffice to bolster demand for positions increasingly automated by AI. As the Fed prepares to reduce rates further, “so long as economic uncertainty is high, it’s hard to know exactly how many people you should hire,” Ullrich added.
Businesses in the manufacturing and services sectors surveyed ongoing frustration over Trump’s significant policy changes and their resulting impacts on demand and planning. “Client demand in professional services remains steady, though decision-making timelines are lengthening due to continued economic uncertainty and interest-rate concerns,” one business said. The Federal Reserve is poised to reveal its most recent monetary policy decision following the conclusion of its two-day policy meeting on October 29, with a news conference featuring Chair Jerome Powell slated for 2:30 p.m. on that day.
