TOKYO/WASHINGTON, Oct 15 (Reuters) – The U.S. government shutdown, which has cut off the official flow of data, could begin to cloud the vision of policymakers in Japan and other countries, where knowledge of the future of the world’s largest economy informs the outlook for their own currencies, trade performance and inflation.
In other words, what happens in America doesn’t stay in America, and global officials say remaining blind to data because of the shutdown over time could complicate their own policymaking and increase the risk of error at a time when countries are already adjusting to the Trump administration’s efforts to reshape global trade.
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“This is a serious problem. We hope it will be resolved soon,” Bank of Japan Governor Kazuo Ueda said at a press conference on October 3, as he discussed the obstacles the BoJ faces in deciding when to resume interest rate hikes.
A Japanese policymaker went further.
“It’s a joke. (Federal Reserve Chairman Jerome) Powell keeps saying that Fed policy depends on data, but there is no data to rely on,” said the official, who declined to be named because he was not authorized to speak publicly.
Catherine Mann, a policy fellow at the Bank of England, said issues surrounding U.S. data, the controversy over Fed independence and other topics do not appear as directly in the BoE’s policy debate as trade policy changes, for example, which directly affect things like prices and export prospects.
But she noted that over time, the pound lost its central status in the world, a process that took decades and was driven by multiple forces she called “termites” that weakened the pound’s role over time.
Policy changes that could degrade the dollar’s position or erode the Fed’s independence “are things that we have in mind but are not at the forefront,” Mann said. But “it’s termites, as opposed to something imminent.”
Financial and economic leaders from around the world are gathering in Washington this week for meetings of the World Bank and the International Monetary Fund and – in a world gripped by an ongoing European land war, tensions and violence in the Middle East and long-term problems like climate change – much of the meeting’s oxygen will likely be consumed by discussion of US President Donald Trump’s plans for the world, his performance in power so far and, now, the sudden cessation of official information on the rate of 30 dollars. a trillion-dollar economy that represents about a quarter of global production.
The shutdown could end at any time and data flow could resume. But the episode is nonetheless symptomatic of a deeper set of problems around U.S. governance and data reliability, including Trump’s efforts to gain new influence over the Federal Reserve and the firing of the head of the Bureau of Labor Statistics because he was angry over a jobs report that the IMF cited among the “downside risks” the world currently faces.
“Intensifying political pressure on political institutions…could erode hard-earned public confidence in their ability to fulfill their mandates,” says the World Economic Outlook released Tuesday by the IMF. “Pressures on technocratic institutions responsible for data collection and dissemination could also erode public and market confidence in statistics from official sources, significantly complicating the tasks of central banks and policymakers in making policy decisions… It also increases the likelihood of policy errors if political interference leads to compromising the quality, reliability and timeliness of data. data.”
“THE RISK OF ERROR INCREASES”
It’s not like all the data is gone. The U.S. Federal Reserve, self-funded and unaffected by the shutdown, continues to examine its vast network of contacts on the economy, and private data services offer alternatives that policymakers have learned to turn into useful, if imperfect, substitutes for at least short-term analysis.
“The monthly U.S. data flow is talked about but never a deciding factor,” said Adam Posen, president of the Peterson Institute for International Economics and a former Bank of England policymaker.
But Posen said the shutdown itself and the uproar around the BLS “contribute to the general skepticism about the governance of the United States and the reliability of the United States… And that’s important. It ends up fueling reserve management and currency decisions and fuels prospects of volatility for the United States that didn’t exist before.”
If the spring meetings of the IMF and World Bank were focused solely on the uncertainty posed by Trump’s plans for higher tariffs and growing protectionism, the focus is now on how businesses, countries and consumers are coping with this new landscape.
Short answer: Not as bad as expected when Trump first took office, at least until September, but there are still adjustments, according to the IMF’s WEO update which found “a significant, but not massive, impact of the policy change on the economic outlook.” After reducing its global growth forecast by half a percentage point in April, to 2.8%, the IMF, in its latest projection released on Tuesday, clawed back most of that forecast, with global growth now estimated at 3.2% for the year.
But now, with a major hole in the flow of data covering about a quarter of global economic output, the picture will become increasingly blurred the longer the shutdown lasts.
“Certainly, there is still a lot of information available, and policymakers are devoting substantial effort to collecting microdata and anecdotal evidence,” Robert Kahn, director of global macroeconomics at Eurasia Group, said of the United States. “But how best to implement this and, more importantly, how markets will react to such news remain crucial unknowns. As time passes, the risk of error increases as uncertainties grow.”
Reporting by Leika Kihara in Tokyo and Howard Schneider in Washington; Editing by Dan Burns and Andrea Ricci
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