"No October employment report"… Shutdown that dampened hopes for a rate cut

Both employment and unemployment figures became difficult to verify

Probability of a December cut fell in a month from 100%→30%

Skipping the employment data entirely is unprecedented

FOMC minutes: "Majority favored holding steady in December"

A majority of Federal Reserve (Fed) officials indicated at last month's monetary policy meeting (FOMC) that it would be desirable to keep the policy rate unchanged in December, according to the minutes released. As the federal government shutdown led to the cancellation of the October employment report — a key indicator for rate decisions — the market cut its estimate of a December rate cut from 100% a month ago to about 30%.

The minutes of the October FOMC meeting, released on the 19th (local time), stated that "many participants indicated that, in light of their economic outlooks, it would be desirable to maintain the policy rate for the remainder of the year." The minutes also noted that "some participants said a December rate cut would be appropriate if the economy evolved as they expected." By Fed wording convention, this suggests that hold views were more prevalent than cut views at that meeting.

With the cancellation of the October employment report, market participants now see a lower chance that the Fed will cut rates at the FOMC meeting scheduled for December 9–10. This is because it is no longer possible to verify both the slowdown in monthly payroll gains and any sharp rise in the unemployment rate — indicators that officials favoring a cut were watching closely.

According to CME FedWatch, the probability of a December rate cut fell to 29.6%. Until the day before, the market had been assigning a roughly 50.1% chance, and a month earlier the outlook had strongly favored a cut at 98.8%.

The U.S. Department of Labor's Bureau of Labor Statistics (BLS) said it "does not plan to distribute the October employment report data." This is an effect of the longest-running federal government shutdown in history.

The BLS said it will include business-survey-based nonfarm payroll change statistics in the November employment report and will publish them together on the 19th of next month. Because survey data were not collected during the shutdown, household-survey-based statistics, which include the unemployment rate, will be completely omitted for October.

This is the first time the BLS has entirely skipped publishing a monthly employment report. In the past, some reports were delayed by shutdowns, but there has been no precedent for wholly skipping major employment indicator releases.

Reporter Dayeon Lim allopen@hankyung.com