Fed Faces Dilemma Ahead of October 29 FOMC Meeting as Shutdown Delays Key Data

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Fed Faces Dilemma Ahead of October 29 FOMC Meeting

 

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With the next Federal Reserve (FOMC) decision scheduled for October 29, policymakers are facing an unusual challenge: the government shutdown has delayed critical economic data, leaving the Fed “flying blind” just weeks before its next interest rate call.

At the September meeting, the Fed cut rates by 25 basis points, and market pricing suggests traders expect another cut in October. But with a slowing labor market and persistent inflation pressures, the decision won’t be straightforward.

What Is the Fed’s Dual Mandate?

The Federal Reserve’s dual mandate, set by Congress, consists of two key goals:

1. Maximizing Employment
   The Fed aims to create conditions that promote high levels of employment without destabilizing the economy. Chair Jerome Powell recently noted that monthly non-farm payrolls in the range of 0–50k would be consistent with a stable labor market. The current jobs picture may be described as “less hiring, less firing.”
2. Maintaining Price Stability
   The second objective is keeping inflation stable, typically defined as 2% over the long run. The Fed’s preferred inflation gauge is the Personal Consumption Expenditures (PCE) index, which will be delayed if the government shutdown drags on. .

Under normal conditions, the Fed often prioritizes inflation control over employment. However, with recent signs of job market weakness, officials appear to be shifting focus toward the employment side of their mandate.

 

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Why the Fed Is “Flying Blind”

The Fed’s policy decisions rely heavily on official government data, such as jobs, inflation, and consumer spending reports. If the shutdown continues for any length of time, it will interrupt these releases, making forecasts more uncertain, exacerbating a situation where the reliability of existing U.S.  data is being questioned.

This leaves both the Fed and financial markets in the dark:

• Policymakers lack clarity on the true state of the economy.
• Traders are hypersensitive to alternative indicators like PMIs, consumer sentiment surveys.

Market Implications

Normally, the Fed and markets would be weighing one side of the dual mandate more heavily than the other. Right now, the focus is on the cooling jobs market, but sticky inflation and tariff-related uncertainty complicate the outlook.

Fed officials themselves appear divided:

• Some emphasize the need to support employment through rate cuts.
• Others warn that cutting rates too quickly could solidify inflation pressures.

For global traders, this means heightened uncertainty. With fewer reliable signals, there could  be outsized reactions to even  small pieces of non-official data. As a result, volatility is likely to spike when official U.S. data releases eventually resume. Hooked on Headlines: Why Financial Markets Are Addicted to News

 

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Will the Fed Cut Rates Again in October?

If the shutdown continues and the data blackout persists, the Fed will likely cut rates ny another 25 bos, if only as an “insurance policy,” confirming widespread market expectations even without s government shitdown. This would allow policymakers to err on the side of supporting growth until a clearer picture emerges.

Odds for a 25bps Fedc rate cut on  October 29: 96/4

Surce: CME FedWatch Tool

However, forward guidance, normally a key tool for managing market expectations, will be harder to provide. Without reliable data, Fed officials cannot project the economy’s path with confidence. For investors, this means more short-term swings and less certainty about the Fed’s long-term strategy.

The Federal Reserve is entering its October 29 FOMC meeting under unusually difficult conditions. Its dual mandate to maximize employment and maintain stable prices is being tested at a time when the usual economic compass is unavailable.

With the jobs market cooling, inflation still sticky, and official data delayed, the Fed’s next move could set the tone for global markets into year-end. Traders should brace for choppier conditions, sharper reactions to alternative data, and elevated volatility once government reports return.

 

Data Accuracy

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