A government shutdown would make the Fed's job a lot harder as economic data is delayed

  • A potential government shutdown would make the Federal Reserve's job of setting monetary policy a lot harder.

  • That's because the release of certain economic data would be delayed while the government is closed. 

  • Lawmakers need to reach an agreement on spending by September 30 to avert a shutdown. 

The Federal Reserve's job of setting monetary policy will be a lot harder if Congress moves forward with a government shutdown.

That's because a shutdown would delay the release of economic data from government agencies like the Bureau of Labor Statistics and the Bureau of Economic Analysis.

Congress has until September 30 to reach a spending agreement and avoid a shutdown. If a deal is not reached and the government shuts down, then certain economic data like the September jobs report and the consumer price index would not be released until the government reopens.

Those are two crucial pieces of economic data that inform the Fed's decision in making changes to the Fed Funds rate. Weekly jobless claims data would also not be released for as long as a potential government shutdown lasts.

The September jobs report and CPI report are scheduled to be released on October 6 and October 12, respectively, so a government shutdown lasting past those dates would hamper the data-dependent Fed, especially if the shutdown extends to its next FOMC meeting on November 1.

But Minneapolis Fed President Neel Kashkari said that any government shutdown won't stop the Fed in its quest to tame inflation via tighter monetary policy.

In an interview on Monday, Kashkari said the Fed will have to rely on the best private data it can get its hands on if a government shutdown actually happens.

"We'll still have to make decisions with the data that we have available, and if we can't get access to the government data that we rely on, we'll supplement that with the best private sector data we can until that data becomes available," Kashkari said.

As to whether a government shutdown and subsequent data blackout would hamper the Fed's decision to potentially further raise interest rates, Kashkari said that wouldn't be the case.

"The economy has continued to exceed expectations in its underlying resilience, so if the economy is fundamentally much stronger than we realized, on the margin that would tell me rates probably have to go a little bit higher, and then be held higher for longer to cool things off," Kashkari said.

And in a blog post on Tuesday, Kashkari said he sees a 60% chance that the Fed will move forward with another 25 basis point rate hike.

Read the original article on Business Insider