Government Shutdown Complicates Economic Outlook as Inflation Persists and Hiring Slows

Government Shutdown Clouds Economic Outlook as Key Reports Delayed

By CHRISTOPHER RUGABER

WASHINGTON (AP) — As the government shutdown drags on, critical economic data is being postponed, leaving Federal Reserve policymakers grappling with an increasingly murky economic landscape. With inflation stubbornly persistent and hiring slowing sharply, the absence of timely reports is complicating the Fed’s decision-making process.

The Labor Department’s monthly inflation report, originally set for release this Wednesday, has been pushed back to October 24. In an effort to mitigate the impact of the shutdown, the department is recalling some employees to compile data that was collected prior to the closure. This data is crucial for calculating the annual cost-of-living adjustments for millions of beneficiaries of programs like Social Security.

The ongoing shutdown poses further challenges for the Federal Reserve, as it hampers the collection of essential data that informs monthly reports on jobs, inflation, and other economic indicators. The September employment report, which was nearly complete before the shutdown, could be released relatively quickly once operations resume. However, the outlook for October data remains uncertain and could face significant delays.

Federal Reserve Chair Jerome Powell addressed these concerns on Tuesday during remarks to the National Association for Business Economics. He noted that, for now, the central bank is relying on private sector data, such as reports from payroll processor ADP, to gauge economic conditions. However, Powell emphasized that while there are various sources for job-related data, alternatives for tracking inflation and growth are limited.

“We’ll start to miss that data and particularly the October data,” Powell warned. “If this goes on for a while, they won’t be collecting it. And it could become more challenging.”

The Fed is already navigating a precarious situation, balancing two conflicting policy goals: maximizing employment and maintaining stable prices. Currently, inflation remains above the Fed’s target of 2%, with recent figures indicating a 2.9% increase compared to the previous year. Typically, such elevated inflation would prompt the Fed to raise interest rates or at least keep them high.

Conversely, the labor market is showing signs of weakness, with the unemployment rate rising to 4.3% in August from 4.2% the previous month. When employment figures falter, the Fed often responds by cutting rates to encourage borrowing and spending.

In his remarks, Powell acknowledged the complexity of the current economic climate, stating, “There really isn’t a risk-free path.”

As the shutdown continues, the uncertainty surrounding economic data could hinder the Fed’s ability to respond effectively to evolving conditions, leaving both policymakers and the public in a state of apprehension about the future of the economy.