Executive Summary:
The data-dependent Fed is operating as well as possible without the usual economic data releases from government agencies during the shutdown. The shutdown is the latest in a series of unusual challenges Jerome Powell has navigated admirably as Fed chair. When his term ends in May, he’ll no doubt be replaced by a Trump loyalist, who undoubtedly will push the FOMC’s other voting members to provide easy monetary policy. If the chair is outvoted, the resulting internal dissension would be unprecedented and seriously detrimental to the Fed’s credibility. … For now, Powell’s statements during his recent presser suggest that a December rate cut is far from certain. … Check out the accompanying chart collection.
Powell I: In a Fog
Jerome Powell’s term as Fed chair terminates on May 15, 2026. He has four more FOMC meetings to chair. At his latest post-FOMC press conference, on Wednesday, Powell said that he and his colleagues continue to work in the best interests of the American public. They haven’t always succeeded in doing so since Powell assumed the role of Fed chair on February 5, 2018. Many challenges have faced the Fed since the pandemic, including a two-month lockdown recession in early 2020, mounting federal deficits, an inflation shock in 2021 and 2022, the mini-banking crisis of March 2023, and political pressure to lower the federal funds rate during Trump 1.0 and 2.0. Nevertheless, Powell has done a very good job under the circumstances.
The Fed’s latest challenge is the federal government shutdown, which began in early October. Fed officials frequently state that their decisions are “data dependent.” Yet they decided to lower the federal funds rate (FFR) last week without much of the government compiled data on which they depend.
In his presser, Powell said that the Fed is relying on data provided by the private sector: “[I]t doesn’t replace the government data, but it gives us a picture. Again, I think if something material were happening ...
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