US Federal shutdown cuts off economic data! How will it impact policymakers, investors?

The Fed will remain open no matter how long the shutdown lasts, because it funds itself from earnings on the government bonds and other securities it owns.

The government shutdown that began Wednesday is set to deprive critical economic data from policymakers and investors at a time of heightened uncertainty over the US economy’s trajectory.

The impact will be immediate, with the release of the monthly jobs report, scheduled for Friday, expected to be delayed. Likewise, the weekly unemployment claims report, an indicator of layoffs typically published on Thursdays, will also be postponed.

While a brief shutdown may cause only limited disruption, an extended delay in data releases could create significant challenges, especially for the Federal Reserve as it formulates policy decisions.

What Are Challenges In Front Of Fed?

The Fed is grappling with where to set interest rates at a time of conflicting signals, with inflation running above its 2 per cent target and hiring nearly ground to a halt, driving the unemployment rate higher in August.

The Fed typically cuts this rate when unemployment rises, but raises it — or at least leaves it unchanged — when inflation is rising too quickly. It’s possible the Fed will have little new federal economic data to analyze by its next meeting on October 28-29, when it is widely expected to reduce its rate again.

“The job market had been a source of real strength in the economy but has been slowing down considerably the past few months,” said Michael Linden, senior policy fellow at the left-leaning Washington Centre for Equitable Growth. “It would be very good to know if that slowdown was continuing, accelerating, or reversing.”

The Fed cut its rate by a quarter-point earlier this month and signalled it was likely to do so twice more this year. Fed officials said they would keep a close eye on how inflation and unemployment evolve, but that depends on the data being available.

How Shutdown Of Data To Impact Investors?

So far, investors don’t seem fazed by the shutdown. The broad S&P 500 stock index rose slightly Wednesday to an all-time high.

Many businesses also rely on government data to gauge how the economy is faring. The Commerce Department’s monthly report on retail sales, for example, is a comprehensive look at the health of US consumers and can influence whether companies make plans to expand or shrink their operations and workforces.

For the time being, the Fed, economists, and investors will likely focus more on private data.

On Wednesday, the payroll provider ADP issued its monthly employment data, which showed that businesses cut 32,000 jobs in September — a signal the economy is slowing. Still, ADP chief economist Nela Richardson said her firm’s report “was not intended to be a replacement” for government statistics.

The ADP data does not capture what’s happening at government agencies, for example — an area of the economy that could be significantly affected by a lengthy shutdown.

 (With Input From AP)