Chicago Fed President: Government Shutdown Leads to "Data Blind Spot" in Inflation, Interest Rate Cut Path Needs to Be More Cautious

The ongoing government shutdown in the United States has resulted in the suspension of official inflation data release, sparking concerns among some Federal Reserve officials about the future direction of monetary policy. Chicago Fed President Evans expressed his increasing unease about continuing interest rate cuts during an interview on Thursday, citing the lack of key price data. Evans pointed out that the lack of inflation-related data from the private sector compared to labor market indicators has made the Fed's view on price trends "not as clear as it is with employment" during the government shutdown. He said, "If there are problems with inflation, then we may need some time to see signs, which makes me even more uneasy." He further emphasized that in the absence of data and with reduced economic visibility, policymakers should proceed with caution. "When there is a foggy outlook, we should slow down." The Fed cut interest rates for the second consecutive month last month, aiming to provide support to the labor market after a significant cooling in summer employment. However, inflation pressures have not completely eased, with the US inflation rate in September at 3%, still above the Fed's long-term target of 2%, causing some officials to worry that US prices may take longer than expected to fall. Evans specifically mentioned his concern about the rise in core service inflation. These prices are not directly affected by tariffs and often have stronger stickiness, indicating that inflation is still entrenched in the internal structure. "This shows that there is still pressure on service sector prices, which cannot be taken lightly." Data shows that as of September, service prices excluding energy rose by 3.5% year-on-year. Despite the temporary interruption of official labor data, a real-time unemployment rate indicator based on private sector data released by the Chicago Fed on Thursday showed that the unemployment rate in October was around 4.36%, almost unchanged from 4.35% in August, indicating that the labor market has not deteriorated further. As the gap in inflation data widens and internal opinions among officials diverge, the market is starting to bet that the Fed may slow down the pace of interest rate cuts, especially at the next rate decision in December. Evans' latest remarks indicate that the hawkish voices within the Fed have strengthened, contrasting the dovish views recently advocating for continued policy easing to support employment.