Fed Faces Rate Decision Blindfolded as Shutdown Blocks Key Data

​Flying Blind Into the Next Rate Cut
The Federal Reserve is heading into one of its most critical meetings of the year — and doing so with little more than guesswork. The ongoing U.S. government shutdown has frozen vital economic data releases, leaving policymakers to navigate without the usual metrics on jobs, inflation, and consumer spending.

With the next Federal Open Market Committee (FOMC) meeting set for October 28–29, officials remain divided. Some worry about lingering inflation above the 2% target, while others fear weak job growth could signal a deeper slowdown. Despite the uncertainty, markets still expect a quarter-point rate cut to bring the benchmark down to 3.75%–4.00%.

A Missing Picture of the Job Market
The Fed hasn’t seen official employment data since early September, as the Bureau of Labor Statistics remains shuttered. Private reports suggest job growth has cooled sharply — averaging just 29,000 new jobs per month from June through August — but without full government data, no one’s sure if the slowdown reflects weak demand or worker shortages.

“Officials are just flying blind,” said David Seif, chief economist for developed markets at Nomura. “The big question mark right now is what’s going on in the labor market.”

Fed Chair Jerome Powell and his colleagues have repeatedly stressed that the health of the job market remains central to their policy path. Yet without the full data set, even their internal reports offer only partial clarity.

Inflation Stays Sticky
The Consumer Price Index (CPI) for September will still be released, after the White House ordered some staff back to work. Economists expect inflation to clock in around 3.1% year-over-year, slightly higher than August. Meanwhile, the Personal Consumption Expenditures (PCE) index — the Fed’s preferred gauge — was last reported at 2.7% in August, up from 2.3% in April.

That’s enough to keep hawkish members of the Fed uneasy. Kansas City Fed President Jeffrey Schmid argues that current rates remain “the right place to be,” saying they’re still high enough to put pressure on inflation. Others, like new Fed Governor Stephen Miran, believe borrowing costs are already too restrictive.

A Data Drought and Its Dangers
With the shutdown dragging on, even the Fed’s private alternatives — such as credit card spending data or state-level unemployment claims — can’t replace the depth of government reports. “They’re good and useful,” said Richmond Fed President Thomas Barkin, “but they’re not comprehensive nor calibrated.”

The lack of detail could distort the Fed’s view of key trends. Slow job growth, for example, means one thing if driven by weak demand — and another if caused by immigration limits or worker shortages. Without that context, the Fed risks misreading the economy entirely.

A Divided Fed, A Risky Moment
The Fed’s internal debate has rarely been this tense. Some officials, like Christopher Waller, warn that the economy’s “bifurcation” — strong among wealthy households, weak elsewhere — makes policy calibration harder than ever. “We can make our way through,” added Minneapolis Fed President Neel Kashkari, “but the longer this shutdown goes on, the less confidence I have that we’re reading the economy appropriately.”

​Still, with inflation sticky and growth uneven, the Fed seems set to cut rates again, even if it’s doing so half-blind.