Shutdown's data blackout puts Fed on a perilous path

The Federal Reserve was poised to lower interest rates again yesterday despite having only a partial view of how the US economy is faring, writes Colby Smith from Washington

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The government shutdown is creating uncertainty for the Fed, led by Jerome Powell, as it weighs whether to cut interest rates.

(PHOTOS BY NYT)

The Federal Reserve has wagered since August that it could afford to lower interest rates even as inflation picked back up for two crucial reasons.

Price pressures from President Donald Trump's tariffs were likely to be temporary, and a weakening labour market would help to keep inflation in check as companies hesitated to make their products more expensive and wage growth stayed subdued.

The potential pitfalls of this strategy were clear from the start. Jerome Powell, the Fed chair, readily admitted that the approach was hazardous after unveiling it at the central bank's annual conference in Jackson, Wyoming.

Cutting interest rates too quickly could inadvertently stoke inflation, while moving too slowly could tip the economy into a downturn. As Mr Powell put it last month - when the Fed lowered interest rates for the first time this year - the central bank faced "no risk-free path."

The government shutdown, which is entering its fifth week, has made that path all the more treacherous. The federal workers who collect and report economic data on inflation, the labour market, wages and a range of other metrics are no longer performing that work, obscuring officials' view of the economy at a moment when divisions over the policy outlook have sharpened.

The Fed was poised to lower interest rates another quarter of a percentage point yesterday (1 am today in Thailand) to a new range of 3.75% to 4%. But it will be much harder for the central bank to feel confident about what to do next without its most reliable sources of data in hand.