If there is no data by December, will the Federal Reserve (FED) have to "blindly cut interest rates"?

The U.S. government shutdown plunges the Fed into a “data vacuum” or is forced to make December interest rate decisions in the absence of information on key jobs and inflation. This article is based on an article written by Foresight News and compiled and contributed by Foresight News. (Synopsis: Fed sounding board warning: government shutdown makes Fed decision-making difficult, end of the year to cut interest rates or cancel? (Background added: QCP Capital: Fed rate cut and institutional buying, or push bitcoin to usher in a new rally) The ongoing shutdown of the US government is pushing the Fed into an exceptionally difficult situation. If key employment and inflation data remain missing ahead of the December meeting, policymakers may be forced to make key interest rate decisions in an information “vacuum,” greatly increasing the likelihood that they will “cut rates with their eyes closed” in line with the established dove path. According to a report released by Bank of America on October 28, the Fed's “black eyes” scenario at the December meeting is becoming more and more realistic, according to a report released by the Bank of America on October 28. Not only is there no progress in ending the shutdown, but even if the government reopens, it could take months for data flows to return to normal, the report said. This lack of data exacerbates pre-existing divisions within the FOMC. A dove camp, likely to include Chairman Jerome Powell, may stick to the path of rate cuts hinted at in its September interest rate “dot plot”. However, hawkish members of the committee are likely to oppose a third rate cut this year in the absence of fresh evidence of economic weakness. For investors, this unprecedented uncertainty sharply increases the risk of the December meeting. The final policy decision may no longer depend on the latest economic indicators, but more on a split committee weighing old expectations and new risks, which could lead to a situation where both hawks and doves vote against, bringing more uncertainty to market expectations. Missing data or exacerbating internal divisions Bank of America's analysis believes that the September FOMC meeting has exposed deep divisions among policymakers in assessing downside risks to the labor market. At the time, a slim majority believed that these risks were enough to support at least a 75 basis point rate cut over the year. In the absence of new data, the dove group is likely to push to deliver on September bitmap expectations. Some doves may even argue that the prolonged government shutdown itself amplifies downside risks to economic activity as another reason to support a rate cut, the report said. However, the hawkish forces on the committee cannot be ignored. The September dot plot shows that seven FOMC participants support only one rate cut during the year. Bank of America believes this camp includes Barr, Goolsbee, Musalem and Schmid. While they are not expected to dispute the rate cut at this week's meeting, pushing for a third rate cut in December may be “too much” for them, especially as jobless claims reported at the state level remain in a stable range. This increases the risk of at least one hawkish negative vote at the December meeting, and Miran, a member of the dove, may also vote against. Data recovery time determines policy path The Fed's final decision in December will depend heavily on when the shutdown ends and how well economic data catches up. Bank of America has made several scenarios for this. Scenario 1: Get an “outdated” September employment report by the end of November. If the government reopens by the end of November, the market should be able to see the September jobs report before the December meeting. A weak data will reduce the risk of a hawkish downvote, but even a strong data is unlikely to persuade Powell to pause rate cuts because the report will be considered “outdated.” Scenario 2: Two jobs reports for September and October in early November. The situation will be further complicated if the shutdown ends in early November, giving the Bureau of Labor Statistics (BLS) a chance to release two reports before the December meeting. In this case, if the unemployment rate remains flat at 4.3% and the September-October economic activity data is solid enough, then a “pause in rate cuts” in December would be a possible option. Scenario three: Data catches up completely, with three jobs reports. Ideally, the government would end the shutdown soon and the Bureau of Labor Statistics would conduct both October and November surveys to release all three jobs reports for September, October, and November before the December meeting. In this context, Bank of America proposed a rule of thumb for decision-making: an unemployment rate of 4.3% in November would allow the Fed to keep interest rates unchanged in December; An unemployment rate above or equal to 4.5% (in line with expectations from the Fed's Economic Forecast Summary SEP) will prompt a rate cut. If the unemployment rate falls somewhere in the middle of 4.4%, the December decision will be a “close decision” and will depend on a broader data stream, including inflation. Related reports Fed Ball dove: Fed balance sheet reduction into the end, September interest rate cut is very reasonable, bitcoin, Ethereum short-term upset! The US small non-farm payrolls “fell by 32,000” in September, the largest decline in two and a half years, and the probability of the Fed cutting interest rates in October rose to 99%, gold broke through a record high of $3,840! US government shutdown crisis + interest rate cut expectations push up safe-haven demand (If there is no data by December, then the Fed can only “close its eyes and cut interest rates”? This article was first published in BlockTempo's “Dynamic Trend - The Most Influential Blockchain News Media”.