Possible new government shutdown may complicate Fed's interest rate plans

With the US federal government at risk for another shutdown this weekend and the odds climbing that new inflation and jobs data will again be delayed or canceled entirely, central bankers could face new hurdles as they try to craft a path forward for monetary policy.

The Federal Reserve did not cut rates this week, and as it waits for a clearer picture of the domestic jobs market and some assurance that inflation is cooling, new government data delays related to the looming shutdown could complicate future rate decisions.

"Another government shutdown may toss the Fed back into the wilderness as the absence of clear data complicates monetary policy planning," Lukman Otunuga, senior market analyst at FXTM, said in an interview.

The Fed is still moving cautiously on rates after the record 43-day shutdown in October and November 2025 delayed and canceled multiple economic releases, which left "permanent blind spots and data backlogs," according to Otunuga.

"Another round of extended delays may force the Fed to adopt a wait-and-see approach on rates as it drives in the fog," Otunuga said. "As these delays and missing data compound, it could result in serious economic blind spots that boost the risk of policy errors and market instability."

The US government is widely expected to partially shut down early Jan. 31 amid opposition from Senate Democrats to funding the US Department of Homeland Security, after the second fatal shooting of a US citizen by federal agents in Minneapolis and amid broader law enforcement concerns. That funding is part of a larger bill that includes funding for other agencies, including the US Labor Department, which produces key economic data, including the monthly jobs report and the consumer price index, the market's preferred inflation measure.

The January jobs report, scheduled for Feb. 6, and the January consumer price index report, scheduled for Feb. 11, could see the first delays if the shutdown occurs.

On Jan. 28, the rate-setting Federal Open Market Committee (FOMC) agreed to hold rates at their current range of 3.5%-3.75%. The FOMC had cut the benchmark federal funds rate by 25 basis points at each of its last three meetings of 2025. The majority of the futures market does not expect the Fed to cut rates again until June, according to CME FedWatch.

"The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee's goals," the FOMC said in a statement.

Despite lower job gains and "somewhat elevated" inflation, the Fed's policy stance may be near neutral, where policy neither stimulates nor restricts economic growth, Fed Chair Jerome Powell said during his press conference after the vote. Fed officials would "continue to make our decisions meeting by meeting, based on the incoming data," Powell said.

Powell was not asked about the potential impact of another government shutdown, but said the Fed was still dealing with some "distortions" in data caused by the shutdown in 2025.

Potential delay

Another shutdown and potential loss of new government jobs and inflation data may also delay the next rate cut from the Fed, according to Lale Akoner, a global market analyst with eToro.

"If the government shuts down and the next jobs and CPI [consumer price index] reports are delayed, the Fed's challenge is less about missing information and more about confidence in timing," Akoner said in an interview. "Policymakers have access to private payroll data, inflation proxies and financial conditions, but the absence of official releases raises the threshold for action."

While the shutdown-related data gap may not derail interest rate plans, it could push Fed officials to hold off.

"Fed officials can still assess the economy without the latest reports, but uncertainty increases at the margin," Akoner said. "That argues for a pause paired with careful guidance rather than a decisive move."

These potential delays could amplify President Donald Trump's pressure campaign on the Fed to lower rates sooner.

"It is no secret that there is disagreement and acrimony between the Fed and the White House," James Camp, managing director of strategic income at Eagle Asset Management, said in an interview.

Still, the longest federal government shutdown at the end of 2025 had seemingly little impact on the economy and the labor market appears to be holding up, according to Michael O'Rourke, chief market strategist at JonesTrading.

"The October shutdown made it clear that neither the stock market nor the economy [was] negatively impacted," O'Rourke said in an interview. "Investors now see shutdowns as a temporary inconvenience rather than a market headwind."

With private sector data gaining more traction in evaluating the state of the economy, government data lags may have less impact on the Fed's ability to craft policy than they would have just a few years ago, O'Rourke said.