The Federal Reserve Is Still Dealing With The Shutdown's 'Data Fog'

The 43-day government shutdown may feel like ancient history, but it’s still fouling up key economic data.

The government’s official reports on inflation have been both delayed and distorted by the shutdown that spanned October and part of November. That’s complicating the job of Federal Reserve officials who meet next week to set the nation’s monetary policy.

Thursday’s report on Personal Consumption Expenditures inflation, which normally covers December, instead covered only October and November, as the Bureau of Economic Analysis played catch-up. Monthly PCE reports won’t get back to their regular schedule until April.

The other major inflation report, the Consumer Price Index, was also affected. The Bureau of Labor Statistics skipped gathering October data entirely, since the agency could not carry out the surveys it uses to make the report. The agency also collected prices later in November than it normally would, leading some economists to speculate that holiday sales may have distorted the data.

The belated and potentially skewed data is one reason Fed officials are widely expected to hold the central bank’s interest rate steady next week, rather than cutting it for a fourth meeting in a row.

Policymakers are torn between keeping the key federal funds rate higher for longer to fight inflation and cutting it to bolster the faltering job market. The Fed relies on economic data to decide whether price hikes or unemployment poses the greater threat to its dual mandate to keep inflation stable and employment high. The central bank may wait for better data before making any moves.

“Fed officials are likely to want to see several more months of data in order to get a clearer understanding of the underlying trends,” Brett Ryan, senior economist at Deutsche Bank, wrote in a commentary.

The effects of the shutdown could persist for months to come because of how they’ve impacted measures of housing costs in particular, economists said. The BLS was forced to use guesswork to estimate how rent and home ownership costs changed in October. That could affect the data until April, when the bureau is scheduled to survey the homes it skipped in October, economists at Goldman Sachs led by Jessica Rindels wrote in a commentary.

“A methodological feature to assume no inflation in October—when data could not be collected—led shelter inflation to be understated across October and November in the prior report,” Rindels wrote. “We do not expect an unwind until April 2026, when the units that were supposed to be surveyed in October are sampled again.”

Because housing costs are such a big part of household budgets as well as inflation calculations, the snafu could be making inflation seem much lower than it actually is, at least temporarily, wrote Omair Sharif, founder and president of Inflation Insights, in a posted on social media last week.

Annual “core” inflation seemed to cool off considerably over the last three months, with prices rising only 2.6% over the year in December, according to the CPI, down from 3% in September. But if Sharif is correct, that could be a mirage.

“Given distortions in the data, including with respect to rent/OER, core inflation is likely still closer to 3% than 2.5%,” Sharif wrote.

In other words, the data “blackout” that Fed officials lamented during the shutdown has brightened up a bit, but not completely.

“Noisy inflation data due to the government shutdown have likely made it difficult for policymakers to gauge the underlying trend of inflation,” David Seif, chief economist at Nomura, wrote in a commentary.