The Federal Reserve will go into a policy meeting next week with its view of the economy obscured by a U.S. government shutdown that has suspended the release of key data, a less-than-ideal situation for policymakers divided over which risks deserve the most attention.

Official employment data hasn't been released since the shutdown of the federal government began on October 1, but what information that remains available points to still-weak job growth. The Fed's own economic field reporting, still underway at the self-funded central bank, showed possible cracks in consumer spending, and recent business confidence surveys pointed to a dip.

Yet businesses are also warning of coming price increases at a time when inflation is lodged above the Fed's 2% target, estimates of overall economic growth are getting upgraded as the scope of business investment becomes clear, and economists have begun pointing to a possible economic jolt next year as new tax laws, including exclusions for tips and overtime income, boost households' refunds.

FED OFFICIALS FOCUSED ON JOB MARKET

Financial markets expect the U.S. central bank to lower its benchmark interest rate by a quarter of a percentage point to the 3.75%-4.00% range at its October 28-29 policy meeting.

But officials and economists "are just flying blind," said David Seif, chief economist for developed markets at Nomura. "The big question mark right now is what is going on in the labor market, and we cannot know that until we see the report" on monthly employment from the Bureau of Labor Statistics. That report has been delayed by the shutdown, which means Fed officials haven't had a full readout on the job market since early September.

Leading U.S. central bank officials, including Fed Chair Jerome Powell, have focused their recent remarks on the labor market, where growth slid to an average monthly pace of 29,000 jobs from June through August, well below the average of the pre-COVID-19 era.

New risks have emerged as well, including loan loss disclosures by two banks that rattled stock markets, and renewed U.S.-China trade tensions that could upend what Fed officials had hoped was emerging clarity about new global trading rules.

The U.S. Labor Department's statistical agency will release the Consumer Price Index for September on October 24 after the Trump administration ordered some staff back to work so that the inflation data for last month is available to determine the annual Social Security cost-of-living increase. Economists polled by Reuters estimate the index rose 3.1% on a year-over-year basis in September, an acceleration from the month before and a number likely to keep alive some policymakers' concerns about the wisdom of cutting rates any further.

The Personal Consumption Expenditures Price Index, which the Fed uses for its inflation target, has risen from a recent low of 2.3% in April to 2.7% in August, the most recent report. Fed officials expect it to end the year at 3.0% before declining in 2026, a fact some policymakers feel risks a worse inflation problem as households and businesses become accustomed to prices rising faster than the 2% target, as has been the case for the last four and a half years.

Source: Investing.com