Earlier this month, the Federal Reserve decided it would not scale back (i.e. taper) its accommodative asset purchasing program (“QE”) until the economic data — such as growth and the unemployment rate — painted a rosier picture of the American economy.
So it’s particularly ironic that the government shutdown will force the Bureau of Labour Statistics to delay its monthly jobs report, essentially handcuffing the Federal Reserve’s decision-making calculus until the government can agree on a budget.
For September at least, “The Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases,” the Federal Open Market Committee said in a statement.
Now it seems the very fiscal headwinds Chairman Ben Bernanke was concerned about at his September press conference (namely, a government shutdown) will deny him of the data he needs to make a decision when to taper the pace of purchases.
Bill McBride at Calculated Risk explains what happened last time a government shutdown coincided with the BLS’ monthly report:
Back in 1996, following the partial government shutdown from December 16, 1995 through January 6, 1996, the BLS finally released the December 1995 employment report on January 19, 1996. A similar delay would happen this time if the government is shutdown on October 1st (the fiscal year begins on October 1st).
So where does that leave us in terms of monetary policy — and the Fed taper?
The jobs report will likely be late, but how late depends on how long a shutdown endures.
The upshot here is that an October taper is increasingly unlikely. Would the Federal Reserve — which has been so painstakingly careful as of late — really want to freak out markets in the midst of a government shutdown and debt ceiling battle? If the bank is truly data dependent, tapering without good news (or news at all) from the BLS would undercut the central bank’s “transparency” credo.
Put simply by SocGen: “No data, no decision.”
Admittedly, after the September “no taper” decision, many analysts have now said that the Fed won’t make the move until next year.
Given the shutdown, that seems like that’s a certainty.