The government shutdown alters the CPI data for September as the Fed considers the next interest rate cut.

For the first time since 2018, the consumer price index (CPI) of the United States will be released on Friday, in an unprecedented special context.

The inflation report for September, expected to be released this Friday, comes amid a prolonged government shutdown, causing most other federal data to be paused. This situation has created challenges for the Federal Reserve (Fed) as they face limited information ahead of the important policy meeting on October 29.

CPI report becomes the focus in the context of government shutdown

There are no major reports, including data on employment and retail sales, to be released until the government reopens. However, it is noteworthy that CPI data will be released just five days before the Fed meeting on October 29.

“Something unusual is happening this week… It's not just the announcement that took place 5 days before the Fed meeting,” Adam Kobeissi remarked.

Typically, the CPI report from the US is released monthly, usually around the 10th to 13th of the following month. For example, the CPI data for August is published on September 11, while the CPI for July is published on August 12.

According to regulations, CPI data is usually released on Tuesday or Wednesday by the Bureau of Labor Statistics (BLS). Releases on Friday are very rare, with the last occurrence in January 2018.

Regarding the announcement timing related to the Fed meetings, the CPI is usually released 1-2 weeks before the Federal Open Market Committee meeting (FOMC). This gives policymakers enough time to analyze the data along with other indicators before making decisions on interest rates.

In this context, the timing of the announcement has raised speculation about a favorable inflation figure, which could pave the way for another round of interest rate cuts. The Fed's next move now depends almost entirely on this single inflation index.

The possibility of the Fed cutting interest rates | Source: CME FedWatch toolWith the market pricing in a 0.25% rate cut, investors are closely watching whether weaker CPI data could lead to a more aggressive cut of 0.5%.

“Currently, there is about a 99% chance of a 0.25% cut… If the data is lower than expected, the chance of a 0.5% cut could increase,” a market participant commented.

Inflation, Government Shutdown and the Fed's Dilemma

According to analysts surveyed by MarketWatch, the September CPI report is expected to show that consumer prices continue to rise, but possibly at a slower pace than in August. Such a signal could indicate that inflationary pressures are easing.

Estimated CPI report | Source: MarketWatchHowever, the overall picture remains quite unstable. The current government shutdown has hindered data collection and created a layer of political and financial tension that may affect the Fed's decisions.

Lacking updated data from the labor and retail sectors, policymakers may have to rely on incomplete or outdated data when assessing whether inflation is decreasing enough to justify continued easing. The announcement on Friday is viewed as the only clear data point ahead of the Fed's decision next week.

Meanwhile, Fed officials have expressed increasing concern about the weak labor market, which supports the case for interest rate cuts. However, a higher-than-expected CPI report could complicate the outlook, forcing the central bank to weigh the risks of inflation against the possibility of slowing growth.

Mr. Giáo