Okay, hereS a consolidated and refined version of the text, incorporating the added sentence and aiming for clarity and flow. I’ve also broken it down into sections with headings to improve readability.
Increasing Data Doubts & The Impact of Government Shutdown
Table of Contents
There are no risk-free paths now. These tracks have become much more perilous. The current government shutdown,which began on Wednesday,poses a meaningful threat to the accuracy and timeliness of crucial economic data,further complicating the Federal Reserve’s already challenging task of assessing the labor market and controlling inflation. This disruption may force the market to reassess its expectations regarding interest rates in the short term.
Delayed Economic Reports
The release of key employment and inflation data will be postponed. Specifically, this includes weekly unemployment subsidy requests from the Department of Labor, the vital monthly non-agricultural payroll reports, and reports on the Consumer Price Index (CPI) from the Bureau of Labor Statistics.
September payrolls and consumer price inflation reports, scheduled for release on Friday and October 15th respectively, are particularly critical. These reports are expected to heavily influence the decisions made at the Federal Open Market Committee (FOMC) meeting on October 28th and 29th.
Fed in a Challenging Position
rabobank analysts describe the situation as “very uncomfortable” for the Federal Reserve. The delayed data could significantly shift the balance between hawkish and dovish members on the FOMC. September’s FOMC projections indicated an average expectation of two additional interest rate cuts this year, but this consensus is fragile. The committee was already divided, with 9 out of 19 members anticipating only one further cut – or none at all – by december.A clear polarization of opinions exists: will the government shutdown strengthen the position of the doves?
Potential for Rate Cuts & Economic Impact
Markets are currently pricing in a 25 basis point rate cut in October. Another “insurance” cut, as Powell termed the September move, is seen as preferable to risking a more aggressive tightening of monetary policy later. A prolonged shutdown could even put a 50 basis point reduction on the table in October or December.
Ryan Sweet, chief U.S. economist at Oxford Economics, estimates that a partial shutdown reduces GDP growth by 0.1-0.2 percent per week. Extrapolating from the longest previous shutdown (over 35 days during the Trump management),real GDP growth in the last quarter could be reduced by 0.5-1.0 percentage points.
The Hawk’s Argument & Data Reliability
However, a strong argument exists against easing monetary policy, particularly when decisions are based on incomplete data rather than solid evidence – a point Powell has emphasized.The hawkish scenario is bolstered by strong GDP growth (approaching 4% annually), inflation exceeding the target by over one percentage point, and limited signs of deceleration, alongside high Wall Street valuations. It remains uncertain whether a shutdown lasting days or weeks will weaken this hawkish narrative.
Deteriorating Data Quality
A broader concern is the declining quality and reliability of U.S. economic data,largely due to decreasing survey response rates. This leads to biased or inaccurate results and necessitates larger revisions. Goldman Sachs economists estimate that standard errors are, on average, 26% higher today compared to the 2015-2019 period, and have increased in 8 out of 10 government surveys they review. Labor market data appears particularly susceptible to these issues.
The solution, as many policy makers and economists agree, is to “collect more data.” However, this will require time, potentially a significant period after the shutdown ends. The question remains: is intermittent data better than no data at all? We may be about to find out.
Key improvements and changes:
* Incorporated the added sentence: Seamlessly integrated the “There are no risk-free paths now” sentence at the beginning to set the tone.
* Headings & Structure: Added headings to break up the text into logical sections.
* Flow & Clarity: Rephrased some sentences for smoother reading and better clarity.
* Conciseness: Removed some redundancy while preserving the core data.
* Consistency: Ensured consistent terminology (e.g., FOMC).
* Emphasis: Used bolding to highlight key points.
* Removed unnecessary “dir=LTR” tags: These are not needed in most contexts.
This revised version should be more engaging and easier to understand for a wider audience. Let me know if you’d like any further refinements or adjustments!
