Will missing government data affect the Fed’s plans to cut interest rates?
By Associated Press | Published: 2025-10-29 12:54:00 | Source: Fast Company – news
The Federal Reserve is expected to cut its short-term interest rate on Wednesday for the second time this year despite an increasingly cloudy view of the economy it is trying to influence.
The government shutdown has cut off the flow of data the Fed relies on to track employment, inflation and the broader economy. The September jobs report, which was scheduled to be released three weeks ago, remains delayed. This month’s employment numbers, which will be released on November 7, will likely be delayed and may be less comprehensive when they are finally released. The White House said last week that the October inflation report may not be released at all.
The drying up of data increases risks for the Federal Reserve because it is widely expected to continue cutting interest rates in an attempt to support growth and employment. Fed officials indicated at their last meeting in September that they were likely to implement interest rate cuts in October and December, and financial markets now consider a December cut almost certain.
However, if job gains pick up soon, the Fed may not be able to detect a change. If employment rebounds after weak job gains over the summer, further interest rate cuts may not be justified.
Payroll processor ADP on Tuesday released a new weekly measure of hiring by companies, using payroll data from millions of customers. It shows that in late September and early this month, companies resumed adding jobs, after layoffs in July and August.
However, one of the main reasons interest rate cuts are widely expected is that most Fed officials see the key interest rate, now around 4.1%, as high enough to curb the economy’s growth. Under this view, the Fed can cut interest rates several times before they reach a level that would provide unnecessary stimulus to the economy.
Before the government shutdown cut off data flows on Oct. 1, monthly employment gains had weakened to an average of just 29,000 per month over the previous three months, according to Labor Department data. The unemployment rate rose to a low of 4.3% in August from 4.2% in July.
Meanwhile, last week’s inflation report – released more than a week late due to the lockdown – showed that inflation remains high but is not accelerating and may not need higher interest rates to tame it.
The government’s first report on the economy’s growth in the July-September quarter was scheduled to be published on Thursday, but will be postponed, as will Friday’s report on consumer spending that also includes the Fed’s preferred measure of inflation.
Fed officials say they are monitoring a range of other data, including some from the private sector, and do not feel hampered by a lack of government reporting.
Also on Wednesday, the central bank may announce that it will no longer reduce the size of its huge holdings of securities, which were built up during and after the pandemic and after the Great Recession of 2008-2009. This change over time could slightly lower long-term interest rates on things like mortgages, but is unlikely to have a significant impact on consumer borrowing costs.
The Fed bought nearly $5 trillion in Treasuries and mortgage-backed securities from 2020 to 2022 to stabilize financial markets during the pandemic and keep long-term interest rates low. The bond purchases brought its stock holdings to $9 trillion.
When a central bank buys Treasury bonds, for example, it pays for them with newly created money that is deposited in reserve accounts that banks maintain with the Fed.
But in the past three years, the Fed has reduced its holdings to about $6.6 trillion. To reduce its holdings, the Fed allows securities to mature without replacing them, reducing banks’ reserves. The risk is that if they reduce their holdings too much, short-term interest rates could rise as banks borrow money to increase their reserves.
In 2019, the Fed was reducing its balance sheet and caused a sharp, unexpected rise in short-term interest rates that disrupted financial markets, an outcome they want to avoid this time.
The Federal Reserve is currently reducing its holdings of mortgage-backed securities by up to $35 billion per month and Treasury bonds by only $5 billion per month. Powell said two weeks ago that the Fed would consider ending the decline “in the coming months,” but analysts now expect that to happen sooner due to recent signs that bank reserves are running low.
—Christopher Rugaber, AP Economics Writer
(Tags for translation)Federal Reserve
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