US government shutdown hinders key data insights, impact of Trump’s tariffs
The prolonged US federal government shutdown has been affecting the release of key data that policymakers need to assess the trade war’s effects and gauge price and labour market trends, further complicating ongoing rate decision disputes between US President Donald Trump and the Federal Reserve.
Speaking at the Brookings Institution on Monday, US Federal Reserve Governor Lisa Cook joined other colleagues to warn how the lack of government data has challenged their decision-making at the US central bank, as they now have to use figures from the private sector, outreach to businesses and even anecdotal data to assess the current economic climate.
In addition to problems caused by data shortages, Cook is also locked in a legal battle with the Trump administration over her position.
“It is a challenging time to give an outlook speech,” Cook said, pointing out that many data points that she regularly uses to assess the economy – from employment data to price indices – are now on hold.
“The longer the shutdown lasts, the more data could be disrupted.”
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Currently, Fed officials are using a wide variety of data from administrative sources to continually evaluate the state of the economy in real time, including state-level data and various private sector providers.
When asked if the lack of government data would lead to more caution, Cook said: “This will become more difficult going forward.”
The shutdown, which is entering its 35th day and set to become the longest of its kind in American history, has already impacted millions of Americans by suspending its food assistance programme and threatening air traffic.
Government data key to Fed decision is now delayed amid the budget fight between the Republicans and the Democrats, including the jobs report from the Bureau of Labour Statistics, third-quarter gross domestic product from the Bureau of Economic Analysis, and retail sales, construction spending and international trade figures from the Census Bureau.
For many China watchers, monthly foreign holdings of US treasuries, which were released by the Department of the Treasury in the middle of each month, have been suspended since last month.
Data is vital to counter Trump’s disagreement with the Fed on the effects of his global tariff war, inflation trends, labour market and many other issues. Their tension has been elevated high after Trump was sworn into the White House in January, who kept criticising the Fed for their slow rate cuts.
Fed chair Jeremy Powell, long been labelled by Trump as “Mr Too Late”, warned last week that the lack of key economic data has given the Fed an unclear view of the economy.
“What do you do if you’re driving in fog? You slow down,” Powell said during a Federal Open Market Committee (FOMC) meeting on Wednesday.
The Fed cut the benchmark interest rate by a quarter of a percentage point last week to 3.75-4 per cent. It still fell short of Trump’s view of a larger cut. Stephen Miran, Trump’s chair of the Council of Economic Advisers, voted against the decision, in favour of a cut by half a percentage point.
Cook defended the Fed’s rate decision last week, saying the tariff effects are adding about half a percentage point to inflation, and keeps watching “whatever is available” to gauge the labour market and price situation.
“I’m looking at a wide variety of data. And look at the labour market. Look at prices. Certainly, we want to see if tariff effects are persistent, to see if firms are waiting to raise prices,” she added.
“I’m worried about the labour market because of something that we know is a statistical regularity of the labour market. It can turn very quickly. It can deteriorate very quickly. There can be non-linear effects.”
Cook said the federal government shutdown is weighing on activity this quarter, with people directly affected by lower output in the public sector and spillover effects in the private sector, although both could be largely temporary.
“After a temporary slowdown due to the government shutdown, I expect the economy to grow moderately over the medium term, supported by an AI productivity boom,” she said.
“I see the labour market is still solid, but I am highly attentive to downside risks. I see inflation is remaining somewhat elevated due to tariff effects and is subject to upside risks.”
The FOMC’s next policy meeting is scheduled for December 9-10. Many market participants have estimated a further rate cut by a quarter of a percentage point. – SOUTH CHINA MORNING POST