As Data Flow Revives, Fed Still Faces a Deep Policy Divide

• A divided U.S. Federal Reserve begins receiving updated economic reports from the now-reopened federal government this week as policymakers hope for clarity in their debate over whether to cut interest rates when they meet in just over three weeks.
• It remains unclear how much of the shutdown-delayed data, including employment, inflation, retail spending, economic growth, and other aspects of the economy, will be available by the time of the upcoming Fed meeting.
• As of Monday, the Bureau of Labour Statistics said it would publish the delayed employment report for September on Thursday, but the White House has said some of the October reports may be skipped altogether, while data gathering for November may also be hampered by a shutdown that stretched to mid-month.
• The lines of debate have been sharply drawn, and minutes of the Fed's October meeting to be released on Wednesday could provide more detail on the split that has emerged over whether the risk of higher inflation remains pronounced enough to delay rate cuts for now, or whether slowing job growth and looser monetary policy should take priority.
• "I am not worried about inflation accelerating or inflation expectations rising significantly," Fed Governor Christopher Waller said on Monday. "My focus is on the labour market, and after months of weakening, it is unlikely that the September jobs report later this week or any other data in the next few weeks would change my view that another cut is in order" when the Fed meets on December 9-10.
• Fed Vice Chair Philip Jefferson meanwhile said the central bank should go "slowly" given the benchmark interest rate, in the 3.75%-to-4.00% range, is likely nearing the level where it will no longer discourage economic activity and put downward pressure on inflation.
• Clear camps have formed within the central bank, with several Fed governors - all appointees of President Donald Trump - arguing for another cut, and several regional reserve bank presidents taking a hard line on inflation. Still, the intensity of those divisions may mask a narrower set of concerns about timing and the desire for more data to show a clearer direction for the economy.
• The Fed's approval of a quarter-percentage-point rate cut at the October 28-29 meeting included dissent in favour of both looser and tighter monetary policy, a rarity in recent decades. Afterward, Fed Chair Jerome Powell offered unusual, explicit guidance about the outcome of the December meeting.
• Those remarks and other recent data have shifted market bets away from a December cut that previously had been given high odds. Policymaker projections in September showed officials themselves anticipated the benchmark interest rate would end the year in the 3.50%-to-3.75% range, a quarter-point below where it is now. Yet that outlook already showed the sharp division emerging, and some officials since then have intensified their concerns about higher inflation.

(Source: Reuters)