No jobs data, no Fed meeting? The central bank’s interest rate decision in December has become more difficult

The Fed has a tough choice at its next policy meeting: lower borrowing costs to boost the labor market, or keep them steady to fight inflation — but there is a third option, which is not to hold a meeting at all.

The Fed’s policy committee is scheduled to meet in December to decide whether to cut the key federal funds rate for the third time in as many meetings. However, crucial economic data on the health of the labor market from the Bureau of Labor Statistics was delayed by the government shutdown last month, and is now scheduled to be released after the Federal Open Market Committee meeting.

Federal Reserve Chairman Jerome Powell and other members of the Federal Open Market Committee said the data blackout caused by the government shutdown complicates their already difficult task of calibrating monetary policy to stabilize inflation and employment. This has led experts to speculate about whether the Fed will simply choose to postpone its meeting for a week to take a look at the important employment report scheduled for December 16.

“The president and others have pointed to operating in a ‘fog’ without official government data,” UBS researchers wrote in a research note. “If the FOMC sticks to its August 2024 meeting schedule, knowing that key data will arrive a week later, this ‘fog’ will become an option.”

Fed officials themselves have not commented publicly on whether the meeting could be postponed to obtain more information about the data. Fed spokespeople did not immediately respond to a request for comment.

The Fed is a rock and a hard place

The key question for policymakers is whether the economy is at greater risk of mass layoffs or higher inflation. Recent economic data has raised concerns about price increases and a slowdown in the labor market, both largely attributed to tariffs.

If inflation is the bigger threat, the Fed could keep interest rates higher for longer. The Federal Reserve decided at its last two meetings to cut interest rates after employers cut hiring sharply over the summer, raising concerns that a rise in unemployment rates could be on the way.

The Fed’s policy committee is now divided over whether to prioritize fighting inflation by keeping interest rates higher or lowering them to support the labor market. As of Monday, financial markets were anticipating an 83% chance of a rate cut in December, according to CME Group’s FedWatch tool, which forecasts interest rate movements based on federal funds futures trading data.

Labor market data could forcefully change these calculations in one direction or another. As UBS researchers note, the Fed has postponed or added meetings before; For example, it delayed a meeting in 1974 to accommodate an international meeting, and in 1971 to avoid disruptions caused by anti-war protests.

While Fed officials have repeatedly said data guides their decisions, much of that data will not be available on the date currently scheduled for their meeting.

“With no solid data for October or November, the December meeting is shaping up to be more about sentiment than evidence,” Bob Schwartz, chief economist at Oxford Economics, wrote in a commentary.