Interpreting economic data is challenging on a good day—harder still when crucial reports go missing.
Yet, even without key labor market updates amid the ongoing government shutdown, the Federal Reserve is still widely expected to cut interest rates by 25 basis points at its meeting on October 30.
Fed Likely to Cut Rates Again Despite Missing Jobs Data
The Bureau of Labor Statistics did not publish its September Employment Situation report on Friday, leaving both markets and policymakers without fresh insight into the labor market—and marking the first such delay in nearly 30 years.
During the last two government shutdowns, the BLS successfully delivered employment data on schedule. During the 35-day shutdown under President Trump from December 2018 to January 2019—the longest in U.S. history—the BLS still released the December Employment Situation report on time, on Jan. 4, 2019.
Similarly, during the 16-day 2013 shutdown under President Obama, the October jobs report was published as planned on Nov. 8.
The last time the BLS delayed a jobs report was during the government shutdown of January 1996, when the December 1995 Employment Situation was pushed back by two weeks and released on Jan. 19, 1996.
The most recent data from August showed a sharp slowdown in hiring.
The U.S. economy added just 22,000 nonfarm payrolls, a steep decline from 79,000 in July and far below consensus expectations. Without September's figures, the Fed must rely on stale data and alternative metrics at a time when its monetary policy decisions remain heavily dependent on labor market trends.
On Friday, the ISM Services PMI showed that the employment subindex contracted for the fourth straight month.
Markets Still Price In Two Cuts By Year End
Despite the data blackout, traders seem nearly certain about what the Fed will do.
The CME FedWatch Tool indicates a 96% probability that the central bank will lower the federal funds rate by 25 basis points, bringing it down to a range of 3.75% to 4.00%.
There's also firm market conviction about a third straight cut in December, with an 86% chance priced in for another move down to 3.5%-3.75%.
Shutdown Complicates Fed's Visibility
Bill Adams, chief economist at Comerica Bank, said it's more complicated than usual to assess the labor market right now.
"It is more difficult than usual to measure the state of the U.S. labor market, with gold-standard economic indicators produced by the federal government unavailable during the shutdown," Adams said.
He pointed to alternative sources suggesting the job market remains stuck in “low hire, low fire, low gear” mode. Layoffs remain subdued as employers hesitate to cut staff, but hiring plans have also cooled.
The Challenger report, a separate private-sector tracker, indicates that hiring momentum is especially weak going into the holiday season—a period that typically experiences a seasonal rise in employment.
"Hiring typically picks up between September and December as retailers ramp up for the holidays, but this year will likely see fewer jobs added than usual in this period," Adams said.
Bank of America Sees October Cut, December Pause
Bank of America economist Adhyta Bhave said the Fed is clearly reacting to labor market data that has shown signs of weakening.
“Considering the Fed’s evident shift to the labor market and recent jobs data on the weaker side, we now expect the Fed to cut in October before pausing in December,” Bhave said.
Bhave attributed the slowdown more to supply-side issues than softening demand, adding that “higher-income spending has been buoyed by equity wealth effects.”
However, Bhave warned that if the Fed underestimates labor supply constraints, it could risk “over-easing” in future decisions.
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