Fed Divided: Inflation Hawks Clash with Jobs Doves Over Rate Cut

The U.S. Federal Reserve faces mounting uncertainty ahead of its December policy meeting as key economic data - including October's jobs report and inflation figures - remain potentially delayed or unreleased due to the recent government shutdown. A White House official confirmed on Wednesday that these critical metrics may never be published in time for the Fed's decision-making process, complicating efforts to assess the economy's health and shaping a deeply divided debate among central bank policymakers.

Federal Reserve officials are now navigating a high-stakes balancing act between inflation risks and labor market concerns. San Francisco Fed President Mary Daly, who has historically supported rate cuts, acknowledged the uncertainty, stating that a decision on December's policy move is "premature" without the latest data. Meanwhile, Boston Fed President Susan Collins has emerged as a vocal advocate for maintaining current interest rates, citing "elevated inflation" and the lack of reliable labor market information as reasons to pause further easing. Her stance reflects a growing faction of "hawks" within the Fed who argue that additional rate cuts could exacerbate inflationary pressures.

The division is evident in market expectations, which now reflect a roughly 55% probability of a December rate cut, down from earlier confidence according to analysis. This shift follows Collins' remarks and similar caution from other officials, including St. Louis Fed President Alberto Musalem, who warned against policies becoming "too easy," and Fed Vice Chair Philip Jefferson, who emphasized the need for prudence amid data gaps according to reports. Fed Chair Jerome Powell has echoed these concerns, describing the path to another rate cut as "far from" assured and highlighting the challenge of managing internal disagreements.

The absence of official data has forced the Fed to rely on alternative indicators, such as private-sector surveys and anecdotal evidence, to gauge economic conditions. However, these sources lack the comprehensiveness of the delayed government reports. For instance, Apollo Global Management's chief economist Torsten Slok noted that prices on 55% of Consumer Price Index components are rising faster than 3%, surpassing the Fed's 2% target. Such insights, while informative, add to the uncertainty surrounding inflation's trajectory.

The situation underscores broader challenges for the Fed as it seeks to navigate a fragile economic landscape. While some officials, like Daly, remain open to cuts if new data justifies them, others, including Collins, argue that holding rates steady is necessary to avoid undermining inflation control. This debate is further complicated by the political context: President Donald Trump has emphasized his influence over the Fed, including the potential to appoint its next chair, raising concerns about the central bank's independence.

As the December 9-10 meeting approaches, the Fed's final decision will hinge on whether incoming data - when available - provides clarity on inflation and employment trends. For now, the absence of October's reports leaves policymakers in a precarious position, with markets bracing for a policy outcome as uncertain as the data itself.