Government Shutdown Clouds Fed's View on Inflation, Recession
The U.S. government shutdown has thrown a spanner in the works for Federal Reserve policymakers, who are grappling with a delicate balancing act between controlling inflation and avoiding a recession. The halt in major economic data releases, including a crucial jobs report, has left them in a bind.
The shutdown, triggered by a funding stalemate in the Senate, has affected federal institutions like the Department of Labor, Bureau of Economic Analysis, and Census Bureau, halting their scheduled data releases. This pause comes at a precarious time for policymakers, with the economy experiencing a hiring slowdown and rising inflation.
The lack of timely data complicates the Fed's decision-making process on setting money market rates. Economists warn that this information vacuum could leave Fed officials ill-equipped to set the best policy at their next meeting on Oct. 29, especially given the significant disagreement among committee members. The Fed had previously projected two additional quarter-point rate cuts this year, but the current uncertainty could force a rethink.
With the shutdown ongoing and no clear end in sight, the halt in data release could make it harder for Fed officials to reach a consensus. This could give more grounds for each member to formulate their own opinion, potentially exacerbating the existing divide within the committee. As the economy stands at an inflection point, the timely release of economic data is crucial for effective policymaking.
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