Data darkness in the US casts a global shadow
The US government shutdown that has shut down the flow of official data could begin to cloud the views of policymakers in Japan and other countries where insights into the world’s largest economy will affect the outlook for their own currencies, trade performance and inflation.
In other words, what happens in America won’t stay in America, and global officials say that the absence of data due to government shutdowns over time could complicate their policymaking and increase the risk of mistakes at a time when countries are already adjusting to the Trump administration’s efforts to transform global trade.
“This is a serious problem. We hope it can be fixed soon,” Governor Kazuo Ueda said at a news conference on October 3, when he discussed the obstacles the BOJ faces in deciding when to resume interest rate increases.
One Japanese policymaker went further.
“It’s just a joke. (Federal Reserve Chairman Jerome) Powell keeps saying that the Fed’s policy depends on data, but there is no reliable data,” said the official, who declined to be named because he was not authorized to speak publicly.
Bank of England policy member Catherine Mann said questions around US data, controversies over the Fed’s independence and other issues do not directly enter the BoE’s policy debate the way changes in trade policy, for example, directly affect things like prices and export prospects.
But he noted how over time the British pound lost its central status in the world, a process that took decades and was driven by forces he called “termites” that weakened the pound’s role over time.
Policy changes that could lower the dollar’s position or erode the Fed’s independence, “are things that are on our minds but they’re not top of mind,” Mann said. But “they are termites, and not something that is imminent.”
Financial and economic leaders from around the world gather in Washington this week for World Bank and International Monetary Fund (IMF) meetings, and – in a world ravaged by land wars in Europe, tensions and violence in the Middle East, and long-term issues such as climate change – much of the oxygen from those meetings will likely be drained by discussion of US President Donald Trump’s plans for the world, his performance so far, and, now, the cessation of official information about a country’s economy. $30 trillion which accounts for about a quarter of world output.
The shutdown can end at any time and data flow resumes. But these events are symptomatic of a deeper set of problems around US governance and data reliability, including Trump’s efforts to gain new influence over the Federal Reserve and his firing of the head of the Bureau of Labor Statistics because he was angry over a jobs report that the IMF called one of the “grave risks” facing the world today.
“Intensifying political pressure on policy-making institutions… could erode hard-won public confidence in their ability to fulfill their mandates,” said the World Economic Outlook statement published on Tuesday by the IMF. “Pressure on technocratic institutions mandated to collect and disseminate data can also erode public and market confidence in statistics from official sources, thereby significantly complicating the task of central banks and policymakers in making policy decisions…It also increases the likelihood of policy errors if political interference leads to compromises in the quality, reliability and timeliness of data.”
‘RISK OF ERROR INCREASED’
That doesn’t mean all data is lost. The Federal Reserve, which is self-funded and unaffected by the government shutdown, continues to survey its vast network of contacts about the economy, and private data services provide an alternative that policymakers have studied to be a useful, if imperfect, alternative at least for short-term analysis.
“The monthly data flow in the US is often talked about but never the deciding factor,” for other central banks, said Adam Posen, president of the Peterson Institute for International Economics and a former Bank of England policymaker.
But Posen said that the shutdown itself and the turmoil surrounding the BLS “contributed to a general skepticism about U.S. governance and U.S. reliability….And that’s important. This ultimately had an impact on foreign exchange reserve management and currency decisions and had an impact on U.S. volatility expectations that previously didn’t exist.”
While the IMF and World Bank meetings in the spring were about the uncertainty created by Trump’s plans for higher tariffs and increasing protectionism, attention is now turning to how companies, countries and consumers are coping with this new landscape.
The short answer: Not as bad as expected when Trump first took office, at least through September, but still in the adjustment phase, according to an IMF WEO update that found “a significant, although modest, impact of policy changes on the economic outlook.” After cutting its global growth forecast by half a percentage point in April to 2.8%, the IMF in its latest projections published on Tuesday slashed that forecast by most, with global growth now seen at 3.2% for this year.
But now, with huge gaps in data flows covering about a quarter of global economic output, the picture will become increasingly blurry as the government shutdown drags on.
“Of course, there is still a lot of information out there, and policymakers are dedicating huge efforts to gathering micro data and anecdotal evidence,” Robert Kahn, global macro director at Eurasia Group, said of the United States. “But how best to put it together, and most importantly how the market will react to the news, is still unknown. As time goes by, the risk of error increases as uncertainty increases.”
Source: Reuters
