October’s jobs report and inflation report will be canceled, and November’s data will be postponed until after the Fed’s Dec. 9-10 meeting. What does this mean for interest rates?
Video: Federal Reserve Announces Interest Deduction
As the government shutdown continues, the Federal Reserve has lowered its benchmark interest rate to a range of 3.75% to 4%.
The Federal Reserve will be forced to look past the government’s latest inflation and jobs data when deciding whether to cut interest rates for the third time in a row next month.
The Bureau of Labor Statistics announced on November 21 that it would discontinue October’s inflation and employment statistics because the government shutdown made it impossible to collect the data. Additionally, the November employment report will be postponed from December 5th to December 16th, and the inflation report will be postponed from December 10th to December 18th. Some of the October data will be released with the November report, BLS said.
Both reports will be released after the Fed’s December 9-10 policy meeting, which means the Fed will have to make interest rate decisions without the government’s labor and price data from the past two months. The Fed had received at least September’s inflation data before deciding to cut interest rates by a quarter of a percentage point on October 29th.
“The Fed is going to act even more blindly than it did last month,” said Michael Gregory, chief deputy economist at BMO Capital.
What does that mean for the Fed?
Economists say the Fed will need to rely on other data when deciding its next rate hike in December, including weekly state unemployment claims, private payroll reports such as ADP, and anecdotal evidence from the Fed Beige Book, which covers all 12 Fed districts.
“The Fed has done this before, but the September (employment) data was not released at the Oct. 29 meeting,” Gregory said.
At the time, Fed Chairman Jerome Powell said: “We’re not going to get a detailed feel for things, but if there’s any kind of significant or substantive change in the economy, I think we’ll pick it up through this.”
Federal Reserve President Christopher Waller has advocated lowering interest rates in recent days, but last week he declined to do so, arguing that he believes the Fed doesn’t have enough data to move forward.
“More data is always good, but as economists we are skilled at using all available data to make predictions,” Waller said. He said available data shows the labor market is soft, tariffs have little lasting impact on inflation and inflation expectations are subdued, all of which point to a rate cut next month.
BMO’s Gregory said he thinks the chance of a rate cut is slightly higher than the chance of no rate cut, but that the December decision is riskier.
“Policymakers will need to employ two months of private sector and other proxy data to fill in the gaps in the labor market in October and November,” Gregory said. “Having to fill in two months of missing numbers instead of one increases the risk of misinterpreting labor market conditions as defined by official statistics, which should make some Fed officials more cautious.”
This is consistent with Chairman Powell’s comments after the October meeting. “When there’s so much uncertainty, there could be an argument to be cautious about travel,” Powell said.
What does this mean for a rate cut in December?
Minutes from the previous meeting showed that Fed members were already divided on whether the Fed should cut interest rates again next month, and the decision remains a tough one. “Several” participants said a further rate cut in December may be appropriate, while “many” said no further rate cut is needed this year.
Comments from various Fed members last week continue to show divergence.
“Basically, there’s no new major economic data coming out until after the summit, so there’s nothing that can help change the current narrative,” said Jay Woods, chief market strategist at Freedom Capital Markets.
Of the 12 members eligible to vote, Woods believes four are leaning toward lowering rates. Of those, “New York Fed President John Williams was the most vocal…he said he still believes that balancing labor market obligations is more important,” Woods said. The Fed has a dual mission of promoting price stability and maximizing employment.
“On the side of not cutting rates is Jeffrey Schmidt (Kansas City Fed President), who voted against cutting rates at the last meeting,” he said. “We also heard comments from voting member (and Fed board member) Michael Barr, who said inflation remains above the 2% target and is a concern. He also noted that the Fed should tread carefully in cutting rates further.”
The annual consumer price index rose slightly to 3.0% in September from 2.9% in August. Core interest rates, which exclude the volatile energy and food sectors, also rose 3.0%, down from 3.1% a month earlier.
Cleveland Fed President Beth Hammack and Chicago Fed President Austan Goolsby have also expressed concerns about inflation.
What do traders expect from the December meeting?
The CME FedWatch tool, which tracks the likelihood of the Fed changing interest rates at each meeting based on interest rate trades, shows there is about a 77% chance the Fed will make three consecutive quarter-point rate cuts. The Fed cut interest rates by a quarter of a point in September and October.
However, Gregory pointed out that market odds also vary. “It’s down to less than 35%,” he said. “This could be a close call for the Fed.”
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
