US Government Shutdown: Economic Data Delays and Fed Policy Implications

Executive Summary

The US economy faces the prospect of significant delays in the release of a series of vital economic data releases as a result of the ongoing government shutdown. This delay raises serious concerns about the Federal Reserve's ability to make informed monetary policy decisions, particularly regarding interest rates.

Key Takeaways

• Potential delays in the release of the September jobs report and October inflation reports.
• Impact of the shutdown on the quality and reliability of published economic data.
• Difficulties for the Federal Reserve in making monetary policy decisions in the absence of accurate and up-to-date data.
• Analysis of the timing of delayed data releases and their potential impact on the Fed's December meeting.

Impact on Economic Data

As the US government shutdown continues, attention turns to the potential repercussions for the release of crucial economic data. The first of these expected reports is the September jobs report, which was originally scheduled for release earlier this month. Estimates suggest that the report could be ready for publication within days of the shutdown ending, potentially by the end of the week or early next week.

The Inflation Data Dilemma

The biggest challenge lies in the October inflation reports, including the Consumer Price Index (CPI), the Producer Price Index (PPI), and the Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge. Due to the shutdown, government employees may be unable to collect the price data needed to produce these reports on time. The worst-case scenario is that these reports will not be published at all. Even if statistical offices manage to compile the data, the quality of the reports will be questionable, and they may lose their relevance due to the delay.

Impact on Federal Reserve Decisions

The absence of accurate and up-to-date economic data will put the Federal Reserve in a very difficult position when making decisions about monetary policy. The Fed is scheduled to hold a meeting in early December to discuss whether to cut interest rates for the third time in a row. Without reliable jobs and inflation data, it will be difficult for policymakers to make informed decisions.

The Future of Delayed Data

The October jobs report is also expected to be delayed and may not be released until just days before the Fed's December meeting. Even in this case, the usefulness of the data may be limited due to the difficulties statistical offices face in compiling it. For example, statisticians will have to ask businesses and employees about working conditions two months ago, which could lead to inaccurate or misleading data. In addition, the furlough of hundreds of thousands of federal employees may distort the data.

Looking Ahead

The November jobs report, scheduled for release on December 5, may provide a clearer and more up-to-date picture of the health of the labor market. In addition, the Fed may be able to view the November CPI data on the second day of its December meeting, providing some clean inflation data after months of uncertainty.

Conclusion

The US government shutdown threatens to undermine the Federal Reserve's ability to make informed monetary policy decisions. Delays in the release of key economic data, especially inflation and jobs reports, create uncertainty and make it difficult for policymakers to accurately assess the economic situation. While future data may provide some clarity, the immediate effects of the shutdown will continue to be felt in financial markets and the US economy as a whole.