As data flow revives, Fed still faces a deep policy divide

The Fed is sharply divided as it begins receiving government data delayed by the shutdown — the BLS will publish the postponed September jobs report on Thursday while some October releases may be skipped — complicating policymakers’ decision on whether to cut rates at the Dec. 9-10 meeting. Fed Governor Christopher Waller has pushed for another cut citing a weakening labor market, while Vice Chair Philip Jefferson and several regional presidents have warned that inflation, roughly a percentage point above the 2% target, remains a risk; the October quarter-point cut already produced rare dissents on both sides. Chair Powell has stressed that a December cut is not a foregone conclusion, markets have trimmed odds of a December easing, and officials are likely to seek a compromise (a cut followed by a pause or a pause with conditional guidance) with new quarterly projections and the catch-up data determining whether cuts are deferred into next year.

Analysis

The Federal Reserve begins receiving government data delayed by the shutdown this week, with the Bureau of Labor Statistics scheduled to publish the postponed September employment report on Thursday while some October releases may be skipped and November data gathering could be hampered; these gaps complicate policy-setting ahead of the Dec. 9-10 meeting. The Fed is visibly split: Governor Christopher Waller argues for another cut citing a weakening labor market, while Vice Chair Philip Jefferson and several regional presidents stress moving "slowly" given the benchmark rate is in the 3.75%-4.00% range and inflation remains about a percentage point above the 2% target. The October 28-29 quarter-point cut produced rare dissents on both sides and Chair Powell has warned a December reduction "is not a foregone conclusion," prompting markets to pare back odds of easing and elevating the importance of the Fed minutes due Wednesday. With officials weighing compromises (a cut then pause or a pause with conditional guidance), incoming catch-up reports plus new quarterly projections will likely determine whether further cuts are delayed into next year amid added uncertainty from a leadership transition.

Key Decisions for Investors

• Monitor the BLS September jobs release (due Thursday) and the Fed's October minutes (due Wednesday) as near-term catalysts before extending duration or increasing rate-sensitive positions
• De-risk interest-rate exposure by favoring short-duration or floating-rate instruments and using hedges, because the Fed's split and inflation roughly 1 percentage point above target make a December cut uncertain
• Maintain position flexibility and avoid assuming a guaranteed December cut—set exit/hedge levels for bets on near-term easing and be prepared to add duration if incoming data clearly shows sustained disinflation