Fed flies blind with govt shutdown

After the Federal Reserve resumed its interest rate-cutting cycle last month, Chair Jerome Powell signalled that incoming US economic data would play an even more critical role than usual in determining the central bank's next steps.

- Jamie McGeever

The US Capitol looms in the distance as a man rides his bike on the second day of the US government shutdown on Thursday.

(AFP)

But the government shutdown means the Fed may now be walking blind.

"We're in a meeting-by-meeting situation, and we're going to be looking at the data," Mr Powell told reporters after the 25-basis-point cut on Sept 17, adding: "There are no risk-free paths now."

Those paths have just gotten a whole lot riskier.

The government shutdown that began on Wednesday could delay the release of a large chunk of economic data, meaning the Fed's ability to accurately assess the labour market and inflation situation — which was already limited — will now be much worse. That, in turn, could make the market rethink its own conviction about the near-term rate outlook.

Key employment and inflation data are set to be delayed, namely weekly jobless claims from the Labor Department, and all-important monthly non-farm payrolls and CPI inflation reports from the Bureau of Labor Statistics.