US government shutdown gives Fed last thing it needs – even less visibility

After the federal reserve continued to cut off the interest rate last month, President Jerome Powell showed that the US economic data will play a more critical role in determining the next steps of the central bank. However, the closure of the government means that the Fed may now be blind.

“We are in the meeting situation at the meeting and we will look at the data.” He said.

These roads were much more risky.
The closure of the government, which started on Wednesday, may delay the release of a large economic data part, ie the ability to accurately evaluate the Fed’s labor market and inflation status – the already limited inflation status. This can allow the market to rethink its own belief about the close -term ratio appearance.

Lock employment and inflation data, the Labor Department weekly unemployed claims and workers’ Bureau of Statistics, very important monthly non -agricultural payrolls and CPI inflation reports will be delayed.

September payrolls and CPI inflation reports will be released on Friday and October 15, respectively. Probably 28-29 October Federal Open Market Committee policy meeting will be the only only the biggest effects of wage determinants’ decisions. As Rabobank analysts point out, with insufficiency, these two data points can potentially bend the balance between Hawks and pigeons in FOMC, because “very disturbing” for the Fed. The FOMC’s September ‘Dot Plan’ showed an average estimation of two rates less this year, but it wouldn’t take much time to change it. The division of views showed that nine of the 19 members of the FOMC were only one more cut until December – or none of them.

The views have a clear polarization. Does the closure strengthen the hand of pigeons?

Data quality doubts grow

In October, one quarter of points are already priced compared to price -term transaction markets. As Powell explains the movement of September, another “insurance” section will also make sense – better to fall behind the curve and then to make it more aggressively facilitated.

This applies especially in a long -term closure that can put a 50 -based cut on the table, especially in October or December.

Oxford Economic Chief US economist Ryan Sweet estimates that even a partial closure reduces GDP growth by 0.1-0.2 points per week. To make this into context, President Donald Trump will reduce the fourth quarter real GDP growth by 0.5-1.0 percent points for more than 35 days in the first period of Trump.

However, since Powell insists that upcoming decisions will be based, there is a challenging situation to relieve fuel with interruptions with an ambush of uncertainty rather than data -based evidence.

The basic situation of HAWKS seems to be strengthening – GDP growth works close to 4% on an annual basis, inflation shows almost a percentage points above the target and a few cooling signs, and the Wall Street is at record levels. It is unclear whether the government’s closure for a few days, even weeks will weaken the narrative of Hawks.

One thing that most policy -maker and economists agreed on is that the quality and reliability of US economic data is worsening in any way in any way due to response rates to surveys. This leads to distorted or wrong results and more and greater revisions.

Economists at Goldman Sachs estimate that standard errors are 26% higher than 2015-2019 and have increased for eight of the 10 governmental polls they reviewed. It is seen that labor market data are affected by the most falling survey intervention rates.

“This is an old problem and old solutions continue to be relevant today: Collect more data:”

This, of course, will probably have to wait after the closure is over. Can’t patch data be preferred for any data? We are about to learn.

(The views expressed here are the author’s views for Reuters)