MW The Fed has a big decision to make without key data. Here's what it could do.

By Greg Robb

The government shutdown has cut off economic data, just as weak job numbers and strong GDP growth present a puzzle for the central bank

"The puzzle is less complete, and they will have to use their judgements to fill the gaps," one economist said of the Fed's upcoming decision on interest rates.

As they prepare to meet in 10 days on interest rates, Federal Reserve officials are very divided over a key question: How worried they ought to be about the U.S. labor market.

"Some folks are less concerned about the downside to the labor [market], and then others are very, very concerned. That's driving differences about how much to cut [rates]," said Aditya Bhave, senior U.S. economist at BofA Global Research, in an interview.

Right before the federal government shut down on Oct. 1, cutting off the flow of statistics, economic indicators were sending rare conflicting signals. Employment was barely growing, whereas growth as measured by real gross domestic product was tracking a solid 3% expansion.

This is unusual; jobs growth and economic growth have always been closely linked. That is why the Fed likes to look at payrolls as a real-time indicator of economic health. It is a good monthly proxy, as GDP data are reported with a lag and is often revised.

But the Fed is missing key government payroll data from September, so it doesn't know whether the weakness in employment has persisted or improved.

"The puzzle is less complete, and they will have to use their judgements to fill the gaps," said Derek Tang, economist and co-founder of LHMeyer/Monetary Policy Analytics.

In a speech this week, Fed Chair Jerome Powell acknowledged the absence of important government data, but noted a wide variety of private-sector data remained available.

Bhave said alternative private-sector data give the Fed "some sense, not a good sense," of current economic conditions.

Fed officials are also relying on their business contacts to give them an accurate picture of conditions on the ground, Tang said.

He noted that St. Louis Fed President Albert Musalem likes to say he talks to retailers, and likely is talking to big-box giant Walmart $(WMT)$.

The Fed also likely gets direct data from big companies like FedEx $(FDX)$ that give them a "real-time read on consumption," Tang added.

Yet while companies like payroll firm ADP $(ADP)$ and Indeed.com $(RCRUY)$ (JP:6098) can give a good idea on job growth, they won't be helpful in determining if the supply of labor has fallen, Bhave noted.

Bank credit-card data, meanwhile, can help track spending.

"The credit-card data can be helpful, particularly if you're worried about a big, sharp, downward decline in spending," Bhave said. He added that internal Bank of America data show continued strength in consumer spending.

Read: This secret ingredient of the economy says things are OK

The last time there was a government shutdown, it took three months before all the data were released, Bhave noted.

If this government shutdown lasts until the end of October, there likely won't be an official inflation report for the month.

For jobs and retail sales, government researchers can go back and ask businesses what happened - but with prices, once the month is past, the data are lost, Bhave said.

Former St. Louis Fed President James Bullard said he believes the GDP data are sending the right signal and the government's payroll data have not been reliable, because of the Trump administration's tough immigration policy.

"Firms are probably being super careful about whether they are going to report anybody as employed that they think maybe they shouldn't be reporting as employed." Bullard said on the sidelines of the International Monetary Fund and World Bank annual meetings in Washington last week.

Traders in derivative markets, meanwhile, are convinced the Fed will vote for a quarter-point rate cut at their next meeting at the end of October.

"They really are scared that the labor market will worsen, and they really want to put a floor under it if they can," Tang said.

Powell was pretty clear the Fed is going to go ahead with an October cut, he added, despite stubborn inflation pressures.

Inflation has been above the Fed's 2% annual target for nearly five years. The government will release the delayed consumer-price inflation data for September next Friday.

While the market also expects another rate cut in December, economists think it is a closer call.

Bhave said he believes that if the government shutdown lasts until the early December meeting, the Fed would be flying even more blind and would be inclined to deliver another cut.

Read: This government shutdown could be the longest ever - maybe running until Thanksgiving. What might the economic damage be?

But other economists have pushed back on this argument.

The cautious tone struck by many Fed speakers in recent weeks was aimed at creating room to possibly pause in December, rather than a sign of a possible pause in October, said Lou Crandall, chief economist at Wrightson ICAP.

Tang agreed: "The Fed is going to tread very carefully with cuts after October."

Each time the Fed cuts rates, the federal-funds rate moves to a lower level and the bar for another cut becomes higher, Tang added.

Bhave stressed that if the Fed holds off a rate cut in December, it should be seen as a positive sign for the health of the economy, as it means that consumer spending has bolstered the labor market.

-Greg Robb

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October 20, 2025 06:00 ET (10:00 GMT)

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