Fed Likely to Cut Rates By a ‘Safe’ Quarter Point, Absent Data

Federal Reserve Chair Jerome Powell: “We’ll start to miss that data,” he said this week. (Hannah Beier/Bloomberg)

The Federal Reserve is preparing for its next policy meeting with less clarity than usual. The government shutdown has paused the release of key data, leaving officials to decide whether to cut interest rates again with only a partial view of the U.S. economy. Most expect the central bank to take the cautious route: a quarter-percentage-point rate cut meant to preserve flexibility until the numbers return.

The Fed also cut rates at its September meeting by a quarter of a percentage point, citing a weakening labor market. Many officials have indicated they don’t think much has changed since then, suggesting another modest cut is likely. October’s expected quarter-point move isn’t about signaling a new direction for policy so much as protecting against a mistake. With no jobs report, retail-sales data, or the Fed’s preferred inflation reading to gauge momentum, Fed officials are likely to act carefully, keeping its easing cycle intact while waiting for a clearer view of the economy.

The shutdown has already delayed the September employment report, retail sales data, and some inflation indexes. The Department of Labor has recalled a small number of employees to publish the September consumer price index on a delayed basis on Oct. 24, four days before the meeting.

Fed Chair Jerome Powell acknowledged this past week that the missing information could soon complicate the Fed’s work. “We’ll start to miss that data,” he said at a business conference. “If this goes on for a while, they won’t be collecting it, and it could become more challenging.”

Fed governor Christopher Waller said on Thursday that the shutdown has “delayed important economic data that policymakers and the public rely on,” making it harder to assess whether the labor market is stabilizing or continuing to soften. Private-sector data are “less informative when they stand alone,” he said.

The missing retail sales report would show whether consumer spending is supporting solid growth or beginning to slow. Delayed inflation data complicates efforts to judge the impact of higher import tariffs and progress toward price stability. Still, Waller noted that business contacts describe steady consumer demand but a slower pace of hiring, a mix that supports another small step toward a more neutral stance.

Fed officials are weighing how to balance inflation risks against signs of a slowing labor market. Boston Fed President Susan Collins said inflation would normally argue for restraint, while a cooling labor market would point to easing. With incomplete information, she said, the balance between those pressures has become harder to judge.

When earlier government shutdowns, in the 1990s and 2010s, delayed major economic reports, officials leaned on regional surveys and anecdotal evidence. Each time, they waited for clarity rather than moving aggressively, a pattern that points toward a smaller adjustment later this month.

Powell has described the current problem as one of reduced clarity rather than crisis. Stephen Miran, the Fed’s newest governor and a recent appointee of President Donald Trump, said forecasts will have to do the work of missing statistics. “It would be really helpful to have the economic data in order to make the decisions we need to make,” he said. “But without those data, we still have to make a decision anyway.”

Analysts at Citigroup expect that the shutdown could extend into November, compressing three months of jobs data into a burst of releases later this year. Those numbers will be critical in determining whether the Fed will keep cutting into 2026. For now, October’s meeting looks like a holding pattern, a modest step to keep policy aligned with a cooling economy until the data flow returns.

Email: Nicole Goodkind at nicole.goodkind@barrons.com