MW Government shutdown means Fed lacks crucial data as it considers rate cuts
By Greg Robb
It's a bad time for the data to disappear
Fed officials are trying to determine how to support the labor market without pushing inflation higher.
The Federal Reserve is already staring down the difficult task of determining interest-rate policy in the midst of a sluggish labor market and high inflation. Now the government shutdown could make the central bank's job even harder by delaying the release of important economic data, like this month's job report.
Fed officials have navigated shutdowns before, but current economic conditions, including rising inflation and a softening job market, make this one especially challenging.
"It is a particularly difficult place to watch the data disappear," said Mark Schweitzer, research associate professor of economics at the Weatherhead School of Management at Case Western Reserve University.
Fed officials are trying to gauge whether the labor market is getting so weak that they need to worry about a recession, and to what extent the central bank can help the labor market with rate cuts without pushing inflation higher.
Fed officials insist alternative sources of data and surveys of business contacts will allow them to keep their finger on the pulse of the economy. For example, the payroll processor ADP and the job-listing site Indeed both track the labor market, banks release credit-card data on spending and reports from major retailers during earnings season also give a sense of the financial health of consumers. Data on inflation, however, are more scarce.
It is "a critical time for the Fed to not have what I call the gold-star government data," said Tara Sinclair, chair of the economics department at George Washington University.
The statisticians in the federal government aim to make their surveys representative, while those at private companies tend to focus on specific questions that matter to them.
If the economy was rolling along, perhaps the Fed wouldn't be so concerned about missing a month of government data, Sinclair said.
But today, even a small tick upward in the unemployment rate could be quite informative about when the Fed should next lower interest rates, she added.
Schweitzer noted that it's one thing for the Fed to hear that business contacts plan to raise prices, which is among the details in the Fed's collection of comments from business sources known as the beige book, but that doesn't indicate whether inflation has gone up. There is no substitute for inflation data like the consumer-price index, which set to be released on Oct. 15. The shutdown could delay or complicate the release of that report.
"The official statistics are still pretty fundamental to getting things exactly right," Schweitzer said.
Fed officials will next meet to set interest rates on Oct. 28-29.
Fed officials are split on next steps
Last month, the Fed moved help the labor market by voting to cut its benchmark rate by a quarter percentage point to a range of 4% to 4.25%. It was the first cut of the year.
In economic projections released with that decision, the median Fed official penciled in two more quarter-point cuts this year. But it was close: Many officials favored fewer cuts or none at all.
Schweitzer, who was formerly director of research at the Cleveland Fed, said he thought the lack of data would make Fed officials hesitant to make more changes.
"If I were them, I would definitely be going on hold," he said, adding that there are no sources to provide them a good gauge on inflation.
Ellen Meade, a former Fed staffer and now an economics professor at Duke University, agreed.
"It seems to be that for sure the lack of government data could make it hard to move from where you are now. The Fed might want to hold firm," she said.
Claudia Sahm, a former top Fed staffer and now the chief economist at New Century Advisors, said she thinks the Fed will go ahead and cut rates again in October.
The Fed is cutting because it is worried about the labor market, she said. Without the key employment data, it will be hard to build a case that the labor market is out of danger.
"I think they were pointed in that direction [of a cut] anyways," she said. One single quarter-point cut was not going to be sufficient to help the labor market, she added.
Economists stress that the Fed is not flying blind. Sahm said a better description was that the central bank is driving with a dirty windshield.
"They will find ways to bring information in. They have navigated shutdowns before. They will make the best of what they have," she said.
Sahm said there could be extra volatility in the market because of the break in the data releases, which could impact the Fed's approach.
The market is used to gauging the economic data with an eye to how the Fed might react. And Powell and his colleagues learn from the market's reaction.
This process "could be a little messier," Sahm said.
-Greg Robb
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October 01, 2025 15:57 ET (19:57 GMT)
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