Shutdown, Staffing Cuts, and Political Pressure Cloud Inflation Picture
All eyes are on Friday’s September Consumer Price Index (CPI) report — the only major U.S. economic release this month — but investors are increasingly questioning how reliable the data will be amid a government shutdown and staffing shortages at the Bureau of Labor Statistics (BLS).
“With the government largely closed and the BLS already under scrutiny this year, the integrity of this report could be in question,” said Vishal Khanduja, head of broad markets fixed income at Morgan Stanley Investment Management. “Skeptics like me are going to be focused on how clean this data is — what accommodations were made, and what adjustments were needed before release?”
The BLS, long considered part of the “gold standard” for economic data collection, has faced mounting criticism over its analog processes and data revisions. In August, President Donald Trump dismissed former BLS Commissioner Erika McEntarfer following significant downward revisions in nonfarm payroll data that sparked public outrage.
Questions Over Accuracy and Coverage
The agency has been contending with budget cuts and reduced staff since before the shutdown, which forced it to scale back data collection in several U.S. cities. Now, as it prepares one of its most consequential inflation reports with limited resources, concerns are rising that sample data could be incomplete.
“For those reasons, investors should be cautious about putting too much weight on the CPI reading,” Khanduja warned. “The efficacy and cleanliness of the data will definitely invite skepticism from the markets.”
Muted Inflation Expectations
Despite doubts about the report’s precision, economists aren’t expecting any major surprises. The Dow Jones consensus forecast calls for 3.1% annual inflation for both the headline and core CPI measures — in line with August figures. On a monthly basis, economists anticipate a 0.4% increase in the headline rate and 0.3% for the core index, which excludes food and energy.
The report carries extra weight as other government data releases remain suspended during the shutdown. The Labor Department recalled select BLS employees to ensure completion of the CPI report, which determines Social Security cost-of-living adjustments. Without other economic indicators, both investors and Federal Reserve policymakers are effectively “flying blind.”
“As the shutdown appears likely to last into November, it’s unclear how the BLS will deal with an unprecedented lack of real-time collections,” Citigroup economist Veronica Clark wrote in a note. “We’ll be watching for any guidance on October CPI collections alongside Friday’s release.”
Fed Poised to Cut Rates Amid Uncertainty
The Federal Reserve is set to meet next week, with markets widely expecting a quarter-point rate cut that could be followed by another in December. Current federal funds rates stand between 4.00% and 4.25%.
However, with unreliable data and limited visibility into inflation trends, policymakers face growing challenges in setting future policy. Trump has repeatedly urged the Fed to lower rates aggressively and is expected to nominate a successor to Chair Jerome Powell next year who aligns with that view.
“I don’t think we’re going to learn a whole lot from this CPI data that we don’t already know,” said Mike Wilson, chief investment officer at Morgan Stanley, on CNBC. “It will likely give the Fed cover to do what they need to do — cut rates more meaningfully. The risk is that we won’t get the data clarity needed to justify those moves.”
