Vacuum in employment data triggers a major shift in Federal Reserve policy; December rate cut probability plummets from 94% to 30%

Government Shutdown Disrupts Data Flow, Federal Reserve Faces Dilemma

The longest federal government shutdown in U.S. history has ended, but its ripple effects are still unfolding. The U.S. Bureau of Labor Statistics announced on Wednesday that, due to data “unavailability” during the shutdown, it will not release the full October employment report. Instead, it has decided to combine it with the full November report. More importantly, the release date for November employment data has been postponed from December 5 to December 16.

What does this delay mean? The Federal Reserve’s last policy meeting of the year will conclude six days before the data is released on December 16. In other words, when making this final major policy decision of the year, the Fed will lack the full non-farm employment reports for September and October as references.

Data Vacuum Causes Market Expectations to Shift Dramatically

This change has immediately impacted market participants’ expectations. According to the “FedWatch” tool on CME(CME), traders’ expectations for a rate cut in December have experienced a dramatic shift: just on Tuesday, the probability was nearly 50%; a month earlier, it was as high as 94%. Now, that probability has plummeted to around 30%.

Alex Cohen, strategist at Bank of America(Bank of America), said on Wednesday: “The dollar’s rebound today is quite impressive. I believe the dollar still has some upside asymmetry because the market still needs data to justify a rate cut in December.” This statement captures the core market anxiety: in the absence of timely employment data, the Fed will find it difficult to justify a rate cut.

Aroop Chatterjee, a strategist at Wells Fargo(Wells Fargo) in New York, went further, saying: “Due to the lack of timely data, the likelihood of holding rates steady has increased. Unless the September data shows unusually weak figures, I believe most policymakers will choose to stay on hold in December.”

Fed Officials Turn Hawkish

This cautious stance is not unfounded. The minutes from the Fed’s October 28-29 meeting, released on Wednesday, show that despite a rate cut last month, policymakers’ opinions were notably divided. The minutes specifically warned that lowering borrowing costs could undermine efforts to curb inflation—indicating rising internal concerns within the Fed about further easing policies.

Dollar Surges, Global Currencies Under Pressure

Market pessimism about rate cuts has directly boosted the dollar. During Wednesday’s New York trading session, the Bloomberg U.S. Dollar Spot Index rose 0.5%, marking the largest single-day gain since September 25, and closed at its highest level in over two weeks. This was the strongest day for the dollar since late September.

The dollar’s strength immediately pressured other currencies. GBP/USD fell 0.7% on Wednesday, marking a fourth consecutive day of decline—the longest streak since October 24. Meanwhile, the New Zealand dollar dropped to its lowest since April, nearly erasing its entire gains for the year. The yen against the dollar fell as much as 1.1% to 157.18, its weakest since mid-January.

Cohen from Bank of America pointed out that the dollar’s rally was also driven by other factors, notably concerns over the UK fiscal outlook, which put pressure on the pound ahead of next week’s UK budget announcement.

Gold Under Pressure, Plunges at One Point

The direct victim of the dollar’s strength was gold. During Wednesday’s early trading in New York, gold prices surged to $4,132.86 per ounce, hitting an intraday high. But then, prices suddenly reversed, falling to a low of $4,055.53 per ounce. By the close, spot gold was only up 0.26% at $4,077.93 per ounce—almost all of the intraday gains of over 1% had been wiped out.

September Non-Farm Payrolls to Be Released Thursday, Still Can’t Fill Data Gap

The Bureau of Labor Statistics will release the delayed September non-farm employment report on Thursday. While this report will provide some reference data, given the complete absence of October data and the forward-looking release schedule for November, its usefulness is limited.

In this environment of data vacuum combined with hawkish Fed officials’ stance, market expectations for the economic policy trajectory after the upcoming U.S. election and the likelihood of further Fed rate cuts have been significantly lowered. The focus now shifts to the specific performance of the September non-farm data and whether the Fed will issue new guidance before the end of the month.