"New Federal Reserve News Agency": Government shutdown leads to data disruption, making it harder for the Federal Reserve to bridge differences

On Thursday, renowned financial journalist Nick Timiraos, known as the "New Federal Reserve Correspondent," wrote that the ongoing U.S. federal government shutdown may lead the Federal Reserve to make its next interest rate decision without key economic data, making it difficult for officials to reconcile their differences on the "magnitude and pace of rate cuts."

Timiraos noted that ironically, the position of Trump and his allies calling for "significant rate cuts" relies on clear signals of a rapid deterioration in the labor market, which are hidden in the economic reports temporarily missing due to the government shutdown.

He stated that without new government economic data, the Federal Reserve is likely to choose to "cut rates by 25 basis points" again at its next meeting in two weeks, continuing a similar action from last month. At that time, concerns within the Federal Reserve about a potentially rapid weakening of the labor market outweighed vigilance over "high persistent inflation." This week, Federal Reserve Chairman Jerome Powell indicated that the recent data absence has not changed this "cost-benefit analysis."

The Federal Reserve Can Only Rely on "Second-Tier Information"

The federal government shutdown that began on October 1 has already led to the suspension of the September employment report and delayed the inflation data originally scheduled for release this week.

The Labor Department has recalled some of the furloughed employees to prepare for the CPI release. The CPI, originally planned for mid-October, has now been postponed to October 24, just days before the Federal Reserve meeting. The CPI is one of the important statistical bases for the central bank's interest rate decisions.

Powell said at a meeting on Tuesday,

"From our perspective, this data will become increasingly indispensable,"

"If the shutdown continues, not only will the data no longer be published, but it will also no longer be collected, which will make our work more challenging."

Although inflation data can provide some guidance to the Federal Reserve, it is only partial information. Regarding other key indicators of consumer spending and the labor market, the Federal Reserve can currently only rely on some "second-tier" private data sources and anecdotal information provided by businesses.

This data gap comes at a particularly awkward time. Timiraos stated that the Federal Reserve is currently trying to clarify the structural changes to the economy brought about by a series of policy "experiments" from the Trump administration. For example, tariff policies have increased operating costs for manufacturing and small businesses, leading to rising consumer prices; trade uncertainty has prompted companies to reduce hiring to maintain profit margins; meanwhile, tightening immigration policies have restricted labor growth and may slow down employment growth.

Disagreements Within the Federal Reserve Existed Before the Government Shutdown

Before losing authoritative government data, there were already disagreements within the Federal Reserve regarding the employment and inflation outlook. Some officials were concerned about a sudden shrinkage in labor demand, while being relatively optimistic about inflation; others believed that the slowdown in employment growth was mainly related to demographic changes, and that the real concern was that if employment stabilized, inflation could become more stubborn.

Timiraos believes that without support from "employment" or "inflation" data, these disputes are difficult to clarify, making it harder to gain more committee support for the significant rate cuts pushed by the Trump camp. Matthew Luzzetti, Chief Economist at Deutsche Bank in the U.S., stated,

"Without data, it is difficult for the committee to form a majority in support of more aggressive measures,"

"So the most feasible path currently remains to cut rates once more in October, by 25 basis points."

Conversely, if the decision is to maintain interest rates, at least strong employment data for September would need to be seen, and it would even require revisions to the data from previous months to be possible.

Increasingly Relying on Private Data in Recent Years

Over the past 30 years, the U.S. government has shut down three times and delayed the release of important economic data. In early 1996, a 21-day government shutdown caused the employment report for December 1995 to be delayed by two weeks, and the CPI data was also delayed by nearly three weeks. At that time, the Federal Reserve received the CPI data the day after the January 1996 meeting, during which the Fed announced a rate cut.

In October 2013, a 16-day government shutdown also led to delays of nearly two weeks for employment and inflation data. John Williams, then President of the San Francisco Fed and now President of the New York Fed, stated on the first day of the meeting:

"Although some economic data has been delayed, we are still not in a 'data blackout.'"

Williams also mentioned that the Federal Reserve could use other sources to replace the delayed government inflation data. A partial government shutdown at the end of 2018 also caused delays in some Commerce Department data, but the Labor Department was not affected, as its funding had been pre-approved by Congress and the White House, allowing the CPI and employment reports to be released as scheduled.

In recent years, both the Federal Reserve and Wall Street analysts have increasingly relied on data from private institutions. For example, internal economists at the Fed use data provided by ADP to estimate private employment conditions.

Additionally, job search websites like Indeed also publish their own statistics on job vacancy indicators, while credit card companies and other financial institutions release weekly consumer spending tracking data.

However, private data is generally used in conjunction with official data, especially in the employment sector. Official data has a long history and rigorous standards, and is regarded as the "gold standard" for measuring U.S. economic activity.

"Although private data may not be as comprehensive or representative, if enough information is collected, it can still roughly depict the actual situation," said Federal Reserve Governor Chris Waller last week. He believes that current data overall indicates that the labor market remains weak.

Timiraos believes that if the government shutdown continues until after the Fed's next meeting, the subsequent release of data may help reach a consensus internally or lead to a more thorough discussion on rate cuts at the December meeting