Fed Cuts Rates Again: Powell Warns December Move Uncertain Amid Data Gaps, Says 'Driving In The Fog'

Washington: US Federal Reserve Chairperson Jerome Powell has warned that the prospect of another reduction in the policy rate at the December meeting is far from guaranteed. Shortly after the central bank announced a largely anticipated 25-basis-point trim on October 29, bringing the overnight lending rate into a range of 3.75 percent to 4 percent, Powell laid bare the deep divisions and data hurdles currently confronting the powerful Federal Open Market Committee (FOMC). 

Speaking at a press conference, Powell outlined the major divisions within the Federal Open Market Committee (FOMC) regarding the future path of monetary policy, citing strongly differing views on how to proceed in December.

The issue's core is attributed to the ongoing, protracted shutdown of the US federal government. The Federal Reserve chairperson stated that the government's ongoing shutdown has resulted in a dearth of critical economic data, forcing the Fed to rely on private sector indicators to gauge the state of the economy. Powell acknowledged that this uncertainty and lack of clear data could largely impact the outcome of the December meeting. "We're not going to have the detailed feel of things," he said, likening the situation to driving in a fog, where one must slow down.

‘Driving In The Fog’: Powell Cites Absence Of Govt Statistics

Powell strongly suggested that while the Fed will continue to gather insights from these non-governmental sources, any major level of uncertainty or lack of clear data could decisively influence the outcome of the impending December policy gathering.

The Fed Chair asserted that while some data on inflation and economic activity will be available, the absence of comprehensive government statistics will make it challenging to make informed decisions. "What do you do if you're driving in the fog? You slow down," he quipped. 

Elaborating on this point of caution, the chairperson stated that if the Federal Reserve is faced with a very high level of uncertainty, this could be a compelling argument for hesitation before moving on rates. "If there is a very high level of uncertainty, then that could be an argument in favour of caution about moving. But we’ll have to see how it unfolds," he added, explaining the conditional nature of the upcoming decision.

Limitations Of Data-Gathering Efforts

Powell also acknowledged the limitations of their current data-gathering efforts. He admitted that while the committee would receive some figures on inflation and economic activity, which would provide a picture of what’s going on, they would not have the detailed, granular understanding required for optimal decision-making. 

Revealing the frustration within the central bank, the chairperson confessed, "We’re not going to be able to have the detailed feel of things."

Beyond the data black hole, Powell also confirmed that there were strongly differing views within the committee on and about how to proceed in December, indicating that the consensus seen in the recent 25 basis point reduction may crumble as the next meeting approaches.

The Federal Reserve Chairperson, without making any firm commitment, expressed the possibility that even if the second-longest federal government shutdown ends and key official data becomes available, the overall picture might still warrant a more cautious approach to future policy adjustments. "I'm not committing to that. I'm just saying it's certainly a possibility," he reiterated.

What Lies Ahead For US Market Participants

The recent rate cut, which brought the benchmark lending rate down to a range of 3.75-4%, was largely expected. However, Fed Chairperson Powell's comments have introduced uncertainty, leaving market participants wondering what lies ahead. The Fed's statement noted that economic activity has been expanding at a moderate pace, with job gains slowing this year and unemployment edging up, albeit remaining low through August. Inflation has moved up since earlier in the year and remains somewhat elevated.

The analysts asserted that these mixed indicators, viewed through the hazy filter of incomplete government data, suggest a volatile situation where the December rate decision is truly up for debate and, possibly, delay. The central bank's dual mandate, which is to promote maximum employment and price stability, is being tested by the current economic conditions. The Fed, with the government shutdown potentially lifting, may regain access to key data, but the road ahead remains uncertain.