Government Shutdown Undermines Economic Data Transparency
Amidst the prolonged U.S. government shutdown that has resulted in a halt in statistical data, divisions within the Federal Reserve have resurfaced. In a public interview, Chicago Fed President and current FOMC voter Austan Goolsbee expressed that the lack of official inflation data increases uncertainty for policymakers, suggesting that the Federal Reserve might need to slow down its pace of interest rate cuts.
Goolsbee noted that the shutdown of the Bureau of Labor Statistics, the Bureau of Economic Analysis, and the Census Bureau has delayed the release of crucial price and employment information, forcing decision-makers to rely on fragmented private data. He admitted that private sector data is limited in scope and fails to accurately reflect inflation trends, making him increasingly uneasy about continued accommodative policies.
Core Services Inflation Remains High, Price Pressures Persist
According to estimates from the Chicago Fed, although the labor market remains resilient, price pressures continue to be stubborn. The core services price index rose by 3.5% year-over-year in September, still significantly above the Federal Reserve's long-term target of 2% when excluding energy factors. Goolsbee warned that such "sticky inflation" means that even if manufacturing and goods prices slow down, inflation in the services sector might still hinder the overall cooling process.
Analysts point out that core services inflation often reflects domestic wage and rent increases, and its downward trajectory is usually slower. Currently, the Federal Reserve faces a dilemma: cutting rates too quickly might cause prices to climb again, while delaying rate cuts could exacerbate labor market sluggishness.
Labor Market Stable But Concerns Linger
The latest data from the Chicago Fed shows that the U.S. unemployment rate slightly increased to 4.4% in October, the highest level in four years. Goolsbee believes that while overall employment still shows stability, the rise in layoffs and quits indicates a "mild cooling" of the market. He emphasized that the current employment slowdown is a moderate adjustment rather than a sharp decline, but if the trend continues, it could weaken the support from household consumption.
Due to the suspension of official statistics, the Chicago Fed has begun to estimate the unemployment rate twice monthly to fill the data gap. The institution points out that the government shutdown has forced around 750,000 federal employees to take leave, accounting for 0.4% of the total labor force, which could further impact the unemployment rate in the coming months.
Market Reprices Policy Path
Goolsbee's remarks have led to a slight retreat in market bets on a December rate cut. Analysts believe that the growing voice of the "cautious camp" within the Federal Reserve indicates that officials are re-evaluating the pace of policy changes. If private inflation data in the coming weeks does not show a clear decline, monetary policy may enter a phase of waiting.
Some institutions expect that the Federal Reserve will maintain current interest rate levels until it can confirm a sustainable decline in inflation. Meanwhile, bond yields have slightly rebounded, and the dollar index has stopped declining and picked up, reflecting adjustments in investors' short-term easing expectations.
Mid-term Outlook: Caution and Patience as Main Themes
Although Goolsbee emphasized that interest rates will trend downward in the long term, he also noted that the current environment requires a "more cautious, patient" policy approach. Market interpretations suggest that the Federal Reserve may prefer to maintain a neutral stance, avoiding hasty actions in the absence of complete data.
Overall, the stickiness of inflation, data gaps, and changes in the labor market collectively shape the new uncertainties in Federal Reserve decision-making. In the foreseeable future, the pace of monetary policy may slow down significantly, with "data recovery" potentially becoming a key prerequisite for the next round of rate cuts.
