Fed Flying Blind: How Government Shutdown Could Derail Rate Cut Plans
TLDR
A partial U.S. government shutdown began October 1, delaying the September jobs report that was expected to inform the Fed’s October 28-29 rate decision
Markets currently price in a 96.2% chance of a 25 basis-point rate cut according to CME FedWatch Tool, with only 3.8% expecting no change
Bitcoin trades near all-time highs at $123,196 while the S&P 500 and Dow Jones closed at record levels
The Fed must make its rate decision without crucial labor market data, creating uncertainty about whether cuts will continue as expected
Private sector data like ADP employment reports show signs of labor market cooling, but these provide less detail than official government statistics
The Federal Reserve faces an unusual challenge ahead of its October 28-29 meeting. The partial government shutdown that started October 1 has delayed the September jobs report indefinitely.
The Bureau of Labor Statistics employees remain furloughed. This means the Fed will not have access to crucial employment and wage data before making its next interest rate decision.
Markets still expect a rate cut. The CME Group’s FedWatch Tool shows 96.2% odds for a 25 basis-point reduction. Only 3.8% of market participants expect rates to stay unchanged.
Polymarket’s decentralized prediction platform shows similar numbers. It gives a 90% chance of a 25 basis-point cut and an 8% chance of no change.
Bitcoin reached $123,196 at the time of writing, close to its all-time high of $125,506 set earlier the same day. The Dow Jones Industrial Average closed at a record 46,758.28 on Friday.
The S&P 500 also hit a record high of 6,715.79. Gold prices reached $3,886 per ounce, up over 48% year-to-date.
Missing Data Creates Fed Uncertainty
The lack of official labor market data puts the Fed in a difficult position. Fed Chair Jerome Powell and other committee members must decide on rates without knowing recent employment trends.
Private sector data provides some information. Reports from ADP and ISM surveys offer partial insights into the economy.
However, these private reports lack the detail of government statistics. Kathy Jones, chief fixed income strategist at Charles Schwab, said the situation leaves policymakers “a little bit in the dark.”
The shutdown itself affects the economy. Furloughed federal workers reduce economic activity. Some positions may face permanent job losses.
The longer the shutdown continues, the greater the risk of economic slowdown. Jones suggested this could lead the Fed to cut rates twice in coming months rather than once.
Market Reaction Stays Positive
Wall Street has largely ignored the shutdown and missing data. Steve Sosnick, chief strategist at Interactive Brokers, described the market attitude as “all news is good news, and no news matters.”
The absence of the jobs report removed one potential obstacle to the market’s rise. Investors continue to bet on further rate cuts this year and next.
George Seay, founder of hedge fund Annandale Capital, acknowledged the optimistic environment. He advised investors to maintain proper allocations rather than trying to time market turns.
Amazon founder Jeff Bezos warned that the AI boom may be creating excess. Speaking at Italian Tech Week, he said investors are funding “every experiment” without distinguishing good ideas from bad ones.
Fed Could Pause Rate Cuts
While markets strongly expect a cut, a pause remains possible. Without clear labor data, some Fed officials may prefer caution over continuing rate reductions.
Inflation stays above the Fed’s 2% target. Services inflation shows persistent wage pressures. A 50 basis-point cut appears highly unlikely given these conditions.
Fed policy depends on incoming data. The shutdown removes that data at a critical time. This creates risk that the Fed’s decision could surprise markets.
If private sector data shows cooling inflation and slower growth, Powell will likely proceed with the expected 25 basis-point cut. Stronger inflation signals could push the Fed toward a pause.
The shutdown could end by mid-October, allowing release of the delayed September jobs report before the Fed meeting. This would give policymakers the full data picture they need to make an informed decision.
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Filed under: News - @ October 6, 2025 7:27 am