Fed Is Expected To Cut Rates Again—but Uncertainty Grows Over Lack of Jobs Data During Shutdown

The Federal Reserve is widely expected to lower interest rates by a quarter of a percentage point when policymakers meet next week, but concerns are mounting over the lack of reliable employment figures.  

Since the start of the federal government shutdown three weeks ago, the central bank has been cut off from vital economic data that the Fed typically relies on to guide its policy decisions. Analysts have compared the situation to a pilot attempting to land a plane blind.  

Financial markets are all but certain that the Fed's Board of Governors will lower its benchmark rate to the 3.75%–4% range during the Federal Open Market Committee meeting scheduled for Oct. 28-29. 

Fed Gov. Stephen Miran, recently appointed to the board by President Donald Trump, has been advocating for a larger half-point cut, echoing the president's calls for more aggressive action.

But Fed Chair Jerome Powell so far has taken a more moderate approach, referring to reductions as "risk management" measures.

Looking ahead, opinions are divided on what the central bank will do come December. 

A recent poll of 117 economists conducted by Reuters found that fewer than three-quarters expect another cut before the end of the year.  

Fed faces jobs data blackout

The Federal Reserve has a dual congressional mandate to promote maximum employment and keep inflation as close to its 2% target as possible.

But since the nonessential parts of the federal government ceased operations on Oct. 1, official jobs numbers from the U.S. Bureau of Labor Statistics have not been released since early September, leaving the Fed with a murky view of economic risks.

The latest available data indicates that the labor market has softened over the summer, with just 22,000 jobs added in August and the unemployment rate ticking up to 4.3% from 4.2% the previous month.

Figures coming out of the private sector suggest that the job market remains mostly in a holding pattern, with no major fluctuations in either layoffs or hiring. 

New inflation report on the way

Meanwhile, the Bureau of Labor Statistics is scheduled to release the consumer price index for September on Thursday, after some furloughed staffers were ordered back to work to compile the latest inflation data. 

Economists polled by Reuters expect the report to show that consumer inflation inched up to 3.1% in September from 2.9% in August, injecting uncertainty into the prospect of an additional Fed rate cut at the end of 2025.

Typically, if the Fed observes a sharp slowdown in hiring, it would be inclined to cut the federal funds rate, while rising inflation would make it more likely to delay another rate reduction.

What it means for the housing market

It's important to remember that the Fed does not directly set mortgage rates, but rather influences them in a more roundabout way by setting the federal funds rate.

However, the information vacuum created by the government shutdown that's clouding the Fed’s decision-making process could negatively influence the housing market in different ways.

Jobs data informs Fed policy decisions, which anchor the 10-year Treasury and, by extension, mortgage rates. Without that benchmark, it is harder to predict exactly what the central bank will do during its upcoming meetings.

Additionally, not knowing the true state of the labor market compounds the uncertainty already weighing on would-be homebuyers and sapping demand.