Turbulence ahead: How a government shutdown would leave the Fed flying blind

CNN’s PM Plug-In is a weekday newsletter to catch you up on important news you may have missed during your busy day. Make sure to subscribe to stay in the know.

You’ve probably heard chatter about a looming government shutdown ahead of next week’s deadline for new federal funding. It’s not the first time we’ve flown into this tempest, but the Federal Reserve is at a pivotal point in its historic quest to steer the economy through high inflation and achieve the tricky “soft landing” our wallets are hoping for. What happens (or doesn’t happen) at the end of next week could risk policy missteps for the central bank.?

WHAT’S HAPPENING

• In the event of a US government shutdown, the Bureau of Labor Statistics says it will “suspend data collection, processing and dissemination” of economic data.?
• Every month, the bureau publishes vital indicators such as the Consumer Price Index, which gauges inflation, and the Employment Situation Summary, which measures unemployment and job growth.
• The latest reports show price increases are easing, but spiking oil prices are inflicting more pain at the pump. And the country still has millions more job openings than job seekers, meaning workers can demand higher wages that could send inflation higher.
• If all that crucial government data goes dark, investors and the Federal Reserve would have a hard time assessing the US economy.
• Just this afternoon, the Fed hit pause on interest rate hikes after signaling it wants to see more data to understand the effects of previous hikes.

HOW WE GOT HERE

• With a funding deadline at the end of the month, House Republicans have struggled to reach a consensus on a defense spending bill and are moving ahead with a plan to fund the government temporarily.
• The framework of a short-term spending plan represents an agreement by two key corners of the GOP, but there is still no guarantee it would have the 218 votes needed to pass the House; all Democrats are likely to oppose the bill.
• Making matters more complicated, some hard-line Republicans are threatening to oust House Speaker Kevin McCarthy if he doesn’t acquiesce to their demands, including passage of individual spending bills and no short-term stopgap.
• The political stalemate is expected to lead to a lapse in funding for the government. And the White House warns that a shutdown would hamper disaster response, delay food safety inspections and disrupt aid to Ukraine. Critical federal employees, such as the military, law enforcement, air traffic controllers and TSA officers, would have to work without pay.?

WHY IT MATTERS

• A lack of key government figures could blindfold the Fed, which always stresses that its monetary policy decisions are “data dependent,” as it tries to steer toward a “soft landing” – slower inflation without a spike in unemployment. But if rate hikes get too big, the economy could slip into a recession.
• Some private groups release data gauging various aspects of the economy, but those don’t always tell the same story. The government’s data is trusted for its “consistency and reliability,” says a US economist with MUFG.
• The chief economist at ZipRecruiter, Julia Pollak, explains that businesses and households “could incur unnecessary costs and risks” if the Fed has to estimate without robust data and gets it wrong. By the time the Fed discovers its mistake, it “could be difficult to reverse.”

How concerned are you about the impact of a government shutdown on the economy? How have past government shutdowns affected you? Share your thoughts in the comments.?

Here are some other stories we're following today:

Attorney General Merrick Garland went toe to toe with House Republicans who accuse him of running the Justice Department like it's President Biden's political hit squad. Testifying less than a week after the DOJ indicted Hunter Biden, Garland insists that the federal prosecutions of President Biden's son and former President Donald Trump are being conducted independently by special counsels. Next week, House Republicans plan to hold the first hearing in their impeachment inquiry into whether Biden and his family used his political power to land lucrative business deals, which the GOP has failed to produce evidence of so far.

We have full coverage of today's heated testimony, including what Garland thinks about some Republicans' idea of defunding the FBI (spoiler: he's against it). Some lawmakers at the hearing were a little loose with the facts, but you can keep things straight with this fact check.

The Biden administration launched the first-ever American Climate Corps program that will train young people for clean energy jobs. The new corps will employ 20,000 in its first year in a wide range of jobs, including restoring wetlands, forest management and building clean energy projects, a White House official says.

The Pentagon announced a new outreach campaign to help LGBTQ veterans correct their military records if they were removed under the "don't ask, don't tell" policy. That policy, which Congress repealed in 2011, prohibited openly gay, lesbian and bisexual Americans from serving in the armed forces, leading to thousands of service members receiving a less-than-honorable discharge and denying them access to military benefits.

Kraft is recalling about 83,000 cases of American cheese singles over a potential choking hazard. Kraft Heinz says a "temporary issue" with one of its wrapping machines allowed for a thin strip of plastic to remain on individual slices after the wrapper was removed. The plastic could be "unpleasant and potentially cause a gagging or choking hazard" if it isn't removed, the company says.?

Who's afraid of 7% rates? The number of mortgage applications ticked up 5% last week compared to the week before, both for new home buys and refinances, data from the Mortgage Bankers Association shows. But new mortgages are still way down (more than 25%) now than they were a year ago – unsurprising considering the 30-year fixed rate has been above 7% for a month. Buying now means absorbing the one-two punch of high rates and home prices. The average new home loan in the US currently tops $416,000.

?? Stay plugged in

We're excited to bring you this PM newsletter each week, Monday through Thursday, from CNN’s Ticker Team right here on LinkedIn. Don't miss the next edition. Subscribe now — and share with colleagues, friends and family.

What did you think of today’s newsletter? Drop a comment below or send thoughts and feedback to [email protected].