Fed December Rate Decision: What Missing Data Means for the Next Move

The Fed December rate decision is shaping up to be one of the year’s toughest calls. A prolonged U.S. government shutdown has starved policymakers of the timely, high-quality data they rely on to gauge jobs and prices. Even if agencies reopen soon, delayed and retroactive surveys could blur the picture just when clarity matters most.

For investors, businesses, and households, the stakes are high. The Fed December rate decision will land amid conflicting signals—some pointing to a cooling labor market, others showing resilience—plus the possibility that October inflation data never arrives.

What’s at Stake in the Fed December rate decision

The Federal Open Market Committee is scheduled to meet Dec. 9–10. Officials already delivered rate cuts in September and late October, arguing that a sharp slowdown in hiring over the summer suggested policy had become too restrictive. After October’s decision, Chair Jerome Powell cautioned that repeating the move in December would be harder without a clean read on the labor market.

That warning looks prescient. In October, officials had up-to-date inflation data but lacked a fresh employment report. December may flip that script—labor data could trickle in while consumer price figures for October may not be published at all. The asymmetry complicates deliberations and raises the odds of disagreement within the committee.

At heart, the decision hinges on whether job and wage growth are decelerating enough to offset persistent inflation risks. If the labor market is weakening faster than expected, a further reduction may be justified. If inflation proves stickier—or if the data are too noisy to trust—many could argue for a pause.

How the shutdown scrambles the numbers

A key challenge is data quality. The monthly jobs report combines two Bureau of Labor Statistics (BLS) surveys: a business survey that produces nonfarm payroll data and a household survey that determines the unemployment rate. Because the reference period is the week including the 12th, delayed outreach means workers may have to recall their status weeks later, eroding reliability.

There’s also the furlough effect. The Congressional Budget Office has estimated that roughly 650,000 federal employees were furloughed during the shutdown. If they were counted as on temporary layoff for the reference week, the unemployment rate could appear about 0.4 percentage points higher—even if the underlying trend didn’t actually worsen. Some economists say the BLS could even skip publishing an October unemployment rate and fold responses into November to preserve integrity.

On inflation, the gaps may be wider. The Consumer Price Index relies heavily on in‑person price collection. While staff were recalled to publish September CPI for Social Security’s annual cost‑of‑living adjustment, economists note that October CPI may be canceled if the shutdown persists, leaving policymakers with few official inflation readings between now and the meeting.

Without clean, comprehensive statistics, the Fed December rate decision grows more complex—and the risk of misreading the economy rises.

What alternative indicators say

• Private payrolls: ADP’s October data showed muted job creation, with hiring concentrated in education and health services. That points to cooling breadth in the labor market.
• Layoffs: Challenger, Gray & Christmas reported elevated announced job cuts earlier this fall, but with week‑to‑week volatility.
• Unemployment insurance claims: These state‑reported figures kept flowing during the shutdown and have not shown a decisive, sustained rise—still one of the clearest real‑time gauges of stress.
• Labor-market composites: Some research teams constructed composite indexes from available private series; they generally indicate cooling conditions, albeit at a slower pace than over the summer.

Investors, searching for a coherent read on the economy and the Fed December rate decision, have had to weigh these mixed indicators. In the $29 trillion Treasuries market, releases from ADP, Challenger, and other private sources have pushed yields around in different directions, underscoring the uncertainty.

Inside the debate: cut or pause?

Within the FOMC, two camps have emerged:

• Cut advocates: They emphasize signs of cooling hiring, rising announced layoffs, softer wage momentum, and tighter financial conditions over recent months. Their concern is that restrictive policy, combined with data delays, could let labor-market weakness compound before it shows up in official reports.
• Pause advocates: They highlight inflation’s persistence in core services and shelter, as well as the lack of a decisive increase in unemployment claims. Without trustworthy inflation data, they argue, the bar for another reduction should be higher.

Powell’s October remarks suggested he’s trying to balance these views—acknowledging the risk of labor-market downside while emphasizing the need for credible evidence. That makes the path into December especially sensitive to any new information that can be trusted.

What could sway the Fed before December

Between now and the Fed December rate decision, a handful of developments could tilt the balance:

• A clean November jobs report: If the household survey is robust and shows a material rise in unemployment or a cooling participation‑adjusted picture, cut odds rise. A steady jobless rate with decent payrolls would argue for patience.
• Weekly jobless claims: A sustained uptrend would validate a softening labor market. Stable claims would support a wait‑and‑see stance.
• Any CPI publication or credible substitute: If the BLS releases October CPI after a swift reopening—or if alternative inflation trackers align on stickier prices—the case for a pause strengthens. A clear disinflation signal would bolster cut advocates.
• Financial conditions: Sharp moves in Treasury yields, credit spreads, or the dollar could either amplify or offset the need for policy moves.
• Fed communications: Speeches and interviews from governors and regional bank presidents often signal how the center of gravity is shifting inside the committee.
• Business surveys: ISM indices, purchasing‑manager data, and small‑business hiring plans may add texture to the growth outlook.

How investors are positioning

Futures pricing has leaned toward better‑than‑even odds of another reduction in December, reflecting confidence among some market participants that the labor market is cooling more than official data will show. But that conviction remains fragile. Conflicting releases from private providers have whipsawed Treasury yields, and options pricing implies investors are paying up for protection against surprises.

A key risk is interpretive error. If October employment figures are published with large caveats—or if CPI is missing—markets could read too much into a single partial indicator and then reverse sharply once more data arrive. That’s why many portfolio managers continue to describe unemployment insurance claims and the official unemployment rate (if published) as the “gold standards” for near‑term signals.

As investors handicap the Fed December rate decision, they are also watching broader conditions: bank lending standards, consumer credit performance, and global growth signals. None point to a dramatic acceleration, but they don’t yet confirm a pronounced downturn either.

What it means for households and businesses

For borrowers, the Fed December rate decision could influence costs in the months ahead:

• Mortgages: Mortgage rates typically move with longer‑term Treasury yields rather than the policy rate alone. A cut could nudge yields lower if it convinces markets that growth and inflation are slowing.
• Credit cards and HELOCs: These are linked more directly to short‑term benchmarks; additional easing would likely lower APRs modestly over time.
• Auto and personal loans: Rates could ease gradually if financial conditions loosen and funding costs retreat.
• Small‑business financing: The cost of revolving credit and short‑term loans may fall if policy eases, but banks’ underwriting standards remain a key swing factor.

For savers, a pause would help keep yields on money‑market funds and CDs elevated for longer, while another cut could start to trim returns at the margin.

Timeline to watch

Key milestones ahead of the Fed December rate decision:

• Government reopening date: Determines whether October data can be rescued or must be skipped.
• Weekly jobless claims: Every Thursday, the most reliable near‑term signal while official releases lag.
• Any BLS catch‑up schedule: Watch for announcements on whether October employment and CPI will be published or combined with November.
• Fed speeches and the Beige Book: Policy tea leaves and anecdotal evidence on labor demand and pricing power.
• Market conditions: Treasury yield swings, credit spreads, and the dollar’s path will feed into the policy calculus.

The bottom line on the Fed December rate decision

The data drought has turned a routine policy meeting into a high‑stakes judgment call. With parts of the October snapshot possibly missing or unreliable, the committee must weigh softer private hiring data against steady jobless claims and an incomplete inflation picture. That will leave members divided between protecting the labor market and guarding against sticky price pressures.

Unless a timely and trustworthy read on jobs and prices emerges, the Fed December rate decision may hinge on risk management: whether to cut again to ensure against labor‑market slippage, or to pause until clearer evidence arrives. Either way, officials will signal they stand ready to adjust quickly as better data come into view.

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Article Source: Bloomberg
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