Data Blackout Leaves Fed Guessing Ahead of Rate Decision

The Fed is heading into its October meeting in the dark. The government shutdown, now in its fourth week, has prevented the release of most key economic data that the central bank relies on to make its rate decisions.

The Federal Open Market Committee (FOMC) will meet Tuesday and Wednesday, as it is independently funded and operates outside the rest of the federal government. Last month, the Fed made its first cut of 2025 — by 25 basis points — bringing the federal funds rate to 4.00%-4.25%. The Fed is widely expected to cut rates again by a quarter of a percentage point to 3.75%-4.00% at its Oct. 28-29 meeting. But it would be doing so without a complete picture of how the economy performed in September.

Rate cuts are important for consumers, borrowers and savers. The Fed’s actions influence how banks and lenders set interest rates on their products. A rate cut means loans will be cheaper for borrowers, but savings returns won’t be as great.

The Fed counts on multiple sets of government data — like labor, growth, retail sales and inflation — to guide its decisions. But when the government shut down on Oct. 1, it meant that key reports would not be released. The one exception is the consumer price index (CPI), which was released on Friday. In lieu of most of its go-to reports, the central bank will have to look largely outside the government for an indication of what the economy looked like in September.

Elizabeth Renter, senior economist at NerdWallet, says the FOMC already has its work cut out for it due to conflicting risk, policy shifts and pressure from the White House. “Adding a federal government shutdown to the mix will make this difficult job even more challenging. Not only does the shutdown mean an absence of crucial federal data, but the longer it goes on the more likely it is to have macroeconomic effects.”

On Oct. 14, Fed Chair Jerome Powell said at an event in Philadelphia hosted by the National Association for Business Economics that the central bank has a “wide variety of public- and private-sector data” available, along with insight from the Reserve Banks nationwide.

“Based on the data that we do have, it is fair to say that the outlook for employment and inflation does not appear to have changed much since our September meeting four weeks ago,” Powell said in prepared remarks. “Data available prior to the shutdown, however, show that growth in economic activity may be on a somewhat firmer trajectory than expected.”

At its last meeting, the FOMC signaled that its cut was more about shielding the job market than fighting inflation. The Fed has a dual mandate of promoting maximum employment and keeping prices stable.

But the Fed won’t have most of its usual labor data this time around. The jobs report was not released by the Bureau of Labor Statistics (BLS) on Oct. 3, as scheduled. The same goes for weekly jobless claims reports from the Department of Labor. The most recent labor report the Fed has is the Job Openings and Labor Turnover Summary (JOLTS), which showed data for August and was released by the BLS on Sept. 30, right before the shutdown.

“The labor market has cooled and is potentially still slowing,” Renter says. “But inflation is still elevated and risks rising higher. This puts the two sides of the Fed’s dual mandate in conflict, and they’re left judging which risk is more pressing in the absence of federal economic statistics.”

The FOMC may look to a number of private data sources as alternatives, such as the ADP National Employment Report, last released on Oct. 1, for labor data. Private economic indicators can help fill gaps, but they aren’t perfect stand-ins for government reports since they track data differently and don’t cover all of the same ground. Still, they’re what the Fed has to work with.

When it comes to inflation, the Fed will have one key dataset to work with: The CPI for September, released Friday (later than scheduled) by the Bureau of Economic Analysis. It showed moderate inflation — 0.3% growth on a monthly basis compared to 0.4% in August. On an annual basis, inflation grew 3%, compared to 2.4% in September 2024.

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