How a government shutdown could leave the Fed flying semi-blind
A U.S. government shutdown could begin this weekend, and many Congress-watchers think it's more likely than not. If prolonged, it would undermine policymakers' ability to measure how the economy is doing in real time.
Why it matters: This is an exceptionally delicate time for policy, as the Federal Reserve weighs whether to keep pushing interest rates higher and tries to guide the economy into a soft landing. Disruptions in the flow of data due to a shutdown would make it harder to make the right calls.
- Monetary policy is already set using backward-looking, unreliable gauges. The risk is that the most important gauges — of trends in employment, inflation and economic activity — will be turned entirely off for weeks.
State of play: The shutdown would cover the Bureau of Labor Statistics, Bureau of Economic Analysis and Census — agencies that produce the key data for understanding the economy, including on job growth, unemployment, the Consumer Price Index and many more.
Yes, but: Policymakers would not be completely flying blind. Indeed, it would be a big moment for an increasingly varied set of private-sector data sources that economists use to complement government reports. In a prolonged shutdown, they would temporarily go from complements to replacements.
- ADP, the payroll processing service, publishes data that sheds light on whether private-sector employers are adding to their payrolls, much as the government employment data does.
- The job listings site Indeed and social network LinkedIn publish data that tracks labor market dynamics — a useful parallel with data in the government's Job Openings and Labor Turnover series.
- The Adobe Digital Price Index is a private-sector measure of inflation modeled after the CPI. Activity indexes from the Institute for Supply Management can capture acceleration or deceleration in business conditions.
What they're saying: "We'll still have to make decisions with the data that we have available, and if we can't get access to the government data that we rely on, we'll supplement that with the best private-sector data that we can until that data becomes available," Minneapolis Fed president Neel Kashkari said this week in an event at the Wharton School.