Fed’s Shutdown Crisis Makes September CPI the Only Game in Town for Monetary Policy

As government offices go dark, one economic indicator emerges as the last beacon for Fed decision-making.

The Inflation Lighthouse in a Storm of Uncertainty

While federal agencies shutter their doors and economic data streams dry up, September's Consumer Price Index stands alone—the sole remaining navigational tool for the Federal Reserve's monetary policy committee. Treasury officials scramble to maintain market stability with limited visibility into economic conditions.

Market Implications in Data Darkness

Traders hang on every CPI decimal point as other indicators vanish from view. The shutdown creates unprecedented conditions where a single inflation reading could dictate interest rate decisions worth billions in market movements. Bond markets fluctuate wildly while cryptocurrency volumes spike as investors seek alternative havens.

When the government stops counting, markets start guessing—and Wall Street's crystal ball business has never been more profitable for those peddling economic fortune-telling.

Fed policy decision rests on CPI data

In August, US headline inflation climbed to 2.9% due to a Ripple effect of trade tariffs introduced by President Donald Trump. For comparison, April’s CPI stood at 2.3%, before most of the tariffs were enacted on “Liberation Day.” 

The September CPI release will therefore become the first,  and possibly only major data input for the Federal Open Market Committee (FOMC) before its meeting next week, when policymakers are expected to trim the federal funds rate by a quarter percentage point.

Despite its importance, the CPI data is being shadowed by a government shutdown that has limited staff availability. Some economists are uncertain about how comprehensive or reliable the data collection process has been.

“Skeptics like me are going to be focused on how clean is this data,” said Vishal Khanduja, head of broad markets fixed income at Morgan Stanley Investment Management. “What were the accommodations made for the lack of full personnel staff showing up? What adjustments were made before the data got reported?”

The Bureau of Labor Statistics has been in the crosshairs of the TRUMP administration over its reporting practices. The POTUS dismissed former BLS Commissioner Erika McEntarfer two months ago after large downward revisions to nonfarm payroll data after the White House found discrepancies the Bureau “could have avoided.”

Fed caught between inflation and jobs mandates

The Federal Reserve has a dual mandate: to maintain low inflation and maximize employment, even though the economy is contending with tariff-driven cost pressures and weak labor conditions. 

Chairman Jerome Powell raised rates in 2022 and 2023, but much to the complaints of Trump asking for a cooldown, the central bank has been reluctant to relax policies. Powell delayed earlier rate cuts, arguing that looser policy could stoke inflation because tariffs lifted input costs for businesses and consumers.

Ahead of Friday’s CPI release, gold tumbled from record highs this week by 5%, logging its largest one-day drop since 2020 after traders took profits against a stronger US dollar. bitcoin saw a brief rally to around $114,000 before easing back toward the low $107,000 range in the US early Wednesday trading sessions. 

The Dow Jones consensus forecasts annual inflation at 3.1% for both the headline and Core readings, which exclude food and energy costs. On a monthly basis, headline prices are projected to rise 0.4%, while core inflation is seen climbing 0.3%, broadly consistent with August’s gains.

US policymakers need data beyond inflation

The Labor Department recalled BLS staff to finalize the CPI because the index is used to adjust Social Security cost-of-living increases, a benefit program that affects millions of Americans. However, CPI data’s significance may not do much for the Federal Reserve in the absence of other government reports.

Investors and policymakers are arguably “flying blind,” according to several market analysts. Without employment figures, retail sales, or industrial production data, the Fed will have little else to gauge the economy’s trajectory.

Markets broadly expect a quarter-point reduction in the federal funds rate, currently standing at 4.00% to 4.25%, followed potentially by another cut in December. 

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