Fed Navigates Economic Fog Without Key Data, Splits Emerge on Rate Path

The Federal Reserve faces a significant data gap ahead of its pivotal December policy meeting, as key economic indicators-including the October consumer price index (CPI) and employment reports-were canceled or delayed due to the 43-day government shutdown. The Bureau of Labor Statistics (BLS) announced the cancellation of the October CPI release, leaving the Fed without a critical inflation gauge for its decision on December 10. The agency cited challenges in retroactively collecting survey data during the shutdown, with the October CPI now scheduled for release on December 18-after the Fed's meeting. Similarly, the delayed September jobs report, set for November 20, will not provide updated labor market trends for October and November until after the central bank's decision.

The data blackout has intensified uncertainty for policymakers, who must weigh inflation risks against a slowing labor market. Fed officials have expressed concerns about operating in a "data fog," with Chair Jerome Powell acknowledging the need for caution. "What do you do if you're driving in the fog? You slow down," Powell said after the October meeting, emphasizing the importance of careful evaluation amid incomplete information according to reports. However, New York Fed President John Williams signaled openness to further rate cuts, stating the Fed has "room for a further adjustment in the near term."

The divide among policymakers reflects broader debates over the economy's trajectory. Christopher Waller, a vocal advocate for rate cuts, argued in a November speech for continued reductions to align monetary policy with neutral rates, while Kansas City Fed President Jeffrey Schmid dissented from the October rate cut, citing a "largely balanced" labor market and persistent inflation. The lack of real-time data has amplified these disagreements, with some officials prioritizing inflation control and others emphasizing the risk of a labor market downturn.

Labor market indicators add to the ambiguity. Continuing jobless claims surged to 1.957 million in the week ending October 18, up from 1.916 million in early September, suggesting elevated unemployment pressure. The ADP private-sector jobs report also showed an average loss of 2,500 jobs per week in late October, underscoring softness in hiring. Without updated data, the Fed must rely on pre-shutdown figures, which showed the unemployment rate near a four-year high of 4.3% in August.

The December decision will hinge on whether incoming data-such as the delayed September jobs report and weekly unemployment claims-reveals a stabilizing labor market or worsening conditions. If unemployment rises sharply, a rate cut becomes more likely; if the labor market holds firm, policymakers may opt to hold rates steady. Either way, the absence of October CPI and employment data complicates the Fed's ability to calibrate policy in a rapidly shifting economic environment.