Federal Reserve Split as Data Goes Dark

A Tough Moment for Data to Disappear

The Federal Reserve already faces a delicate balancing act: setting interest-rate policy amid stubborn inflation and a cooling labor market. Now, the government shutdown threatens to make that task harder by delaying critical economic reports, including this month’s jobs data.

Fed policymakers have weathered shutdowns before, but today’s mix of rising inflation and weakening employment makes the absence of official data especially problematic.

“It is a particularly difficult place to watch the data disappear,” said Mark Schweitzer, research associate professor of economics at Case Western Reserve University.

The central bank is trying to judge whether the labor market is weakening enough to risk a recession, and how much room it has to cut rates without reigniting inflation. Alternative sources—like ADP’s payroll data, job postings from Indeed, credit-card spending reports, and retailer earnings—offer some insight. But inflation data is far harder to replace.

“It’s 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.

Private data tends to be narrower, while official statistics are designed to represent the whole economy. In calmer times, missing a month of reports might not matter. But today, even a small uptick in unemployment could change the Fed’s timing for future rate cuts.

Inflation is an even bigger challenge. Anecdotes from businesses, captured in the Fed’s Beige Book, can hint at price pressures, but they don’t replace hard numbers like the consumer-price index—scheduled for release October 15, but now in doubt due to the shutdown.

“The official statistics are still pretty fundamental to getting things exactly right,” Schweitzer said.

Policy Uncertainty Ahead

Fed officials are set to meet October 28–29. Last month, they cut rates for the first time this year—by a quarter point, to 4%–4.25%—with projections showing two more cuts ahead. But the decision was divided, and the lack of reliable data could push some policymakers to pause.

“If I were them, I would definitely be going on hold,” Schweitzer said.

Ellen Meade, a former Fed staffer and now a professor at Duke, agreed: “The lack of government data could make it hard to move from where you are now. The Fed might want to hold firm.”

Others see another cut coming regardless. Claudia Sahm, former Fed economist and now chief economist at New Century Advisors, argued the central bank is already focused on shoring up the labor market.

“I think they were pointed in that direction anyway,” Sahm said. “One single quarter-point cut was not going to be sufficient.”

Still, without government reports, the Fed risks making decisions with what Sahm called “a dirty windshield.” The central bank will lean on private surveys, market signals, and past experience—but market volatility could rise as investors and policymakers alike try to fill in the gaps.

“This process could be a little messier,” Sahm said.