When pilots fly through clouds, the loss of visibility doesn’t stop the plane. Instead, it shifts reliance toward training, tools, and discipline. That gives us an apt metaphor for the situation that policymakers at the Federal Reserve faced in deciding to cut interest rates this week.
With much of the federal government shut down, many crucial economic data releases have been delayed or suspended. While that may sound like a minor impact in the face of other disruptions, these data points – monthly employment updates, inflation reports, and GDP readings – are staples of the Fed’s decision-making framework. Under normal conditions, policymakers rely on abundant data to estimate a range of likely outcomes. Without those gauges, it’s hard to estimate the range itself, and even harder to set long-term policy expectations.
Fogged Instruments
The Fed usually relies on data from the Bureau of Labor Statistics, the Bureau of Economic Analysis, and related agencies to assess labor-market slack, price pressures, and economic momentum. With agency employees furloughed, scheduled releases cannot be produced or validated. This is forcing the Fed to rely more heavily on alternative indicators such as credit-card spending, private employment surveys, and internal models, without access to its traditional suite of economic data.
Even the data available from before the blackout is harder to contextualize. August payrolls reflected only about twenty-two thousand net new jobs, alongside a modest rise in unemployment to approximately 4.3%, figures that might signal a cooling labor market.[1] However, without follow-up reports, it’s unclear whether this is a blip or a trend. Inflation tells a similar story. Some measures place annual inflation near 3%, but scant visibility into wage dynamics, supply chains, and consumer spending makes it difficult to determine whether price pressures are fading or entrenched.
This isn’t just a problem for the Fed. A lack of data raises the possibility of additional volatility in financial markets. Traders are similarly dealing with the absence of previously dependable reports with data on employment, CPI, international trade, and new housing construction. In the short-term, this allows a gap to more easily form between economic expectations and economic reality. Markets will adjust once the flow of data resumes and could take investors by surprise.
Fed Keeps Flying
Earlier this week, the Fed announced its decision to cut the benchmark interest rate by 25 basis points. This makes mortgages and corporate borrowing more affordable, providing a boost to the economy.
This was widely expected, and markets weren’t surprised. However, what drew investor attention was what the Fed did not commit to next. Policymakers stopped short of promising an additional cut in December, which had been seen as a near certainty.[2] Instead, the Fed emphasized caution, pointing to the lack of timely economic data. In his remarks, Fed Chair Jerome Powell underscored the need for flexibility given the data blackout, stating that an additional cut in December is not guaranteed.
Planning with Incomplete Information
While most families do not track monthly inflation reports themselves, they do expect certain financial information to be available for budgeting and financial planning. They rely on assumptions about expected wage growth, healthcare costs, tuition trends, and relatively stable tax policy. Some uncertainties are expected and can be planned for. For example, we know we cannot forecast inflation or exact tax rates more than a few years into the future, so we use a reasonable estimate.
However, there are times when routine information becomes unavailable or uncertain, and decisions need to be made. A sudden health event with an unknown recovery timeline, an unexpected job change, or even a pandemic that interrupts sales at your small business can disrupt planning in ways that mirror the Fed’s current data blackout constraints. When essential information is missing, good planning emphasizes flexibility rather than precision.
Households may not control the path of inflation or future tax policy – just as the Fed cannot control the flow of government reports – but they can control their savings rate, their spending choices, and the structure of their portfolios. It is easy to become paralyzed when visibility is low, however, the better approach is to continue moving forward even if it means modifying your pace – or emphasizing caution.
Maintaining Flexbility
The Fed’s recent commentary is a reminder that policymakers are operating with less visibility than usual due to the current government shutdown. Fed officials and investors are well acquainted with uncertainty, but when economic reports are temporarily suppressed, the distinction between normal and abnormal uncertainty becomes more salient. Yet the moment also illustrates how thoughtful decision-making can proceed even in a fog.
We understand that we rarely have all the information we want, but we can make good decisions with the information we have while maintaining flexibility to adapt as the future unfolds. Total certainty can be elusive, and too often, waiting for complete information means that an opportunity passes by. At North Berkeley, our team works closely with our clients to craft financial plans and portfolios that are designed for life’s uncertainties, rather than relying on the illusion of perfect data.
Resources
[1] News Release: The Employment Situation – August 2025. BLS.gov
[2] Markets adjusted rapidly, with the probability of a 25bps cut in December quickly falling from >90% before the Fed announcement, to only 60% after Powell’s remarks. Bloomberg
