Article Highlights
- The impact of the US official data stoppage on global policymakers.
- The risks of making incorrect decisions due to a lack of reliable data.
- Perspectives from central bank governors and economic experts.
- The role of international institutions like the IMF.
- Available alternatives to official data and their limited impact.
US Government Shutdown: A Global Problem
The government shutdown in the United States isn't just a domestic issue; its impact extends far beyond. The halt in official data flow creates uncertainty for policymakers worldwide, from Tokyo to London. For countries like Japan, understanding how the world's largest economy is performing is crucial for making informed decisions about currency, trade, and inflation.
A Global 'Data Blind Spot'
Officials worldwide worry that a prolonged US government shutdown could plunge the world into a 'data blind spot.' This could complicate decision-making and increase the risk of errors, especially as countries are already adapting to the Trump administration's efforts to reshape global trade.
Statements from Central Bank Governors
The Governor of the Bank of Japan, Kazuo Ueda, expressed concern about the situation, stating, "This is a serious issue. We hope this will be resolved as soon as possible." He added that the lack of data presents an obstacle for the central bank in deciding when to resume raising interest rates.
A Japanese policymaker criticized the situation more bluntly, calling it "a joke." He pointed out that Federal Reserve Chairman Jerome Powell has consistently emphasized that the Fed's policy is data-dependent, but now there's no data to rely on.
Limited Impact on the Bank of England?
Bank of England policy committee member Catherine Mann believes that issues surrounding US data and the Fed's independence do not directly impact the Bank of England's policy debates in the same way as changes in trade policy, which directly affect prices and export prospects. However, she recognizes that any policy changes that may weaken the dollar's status or undermine the Fed's independence are things to be mindful of.
Rising Risks
In a world grappling with conflicts like the war in Ukraine, tensions in the Middle East, and climate change, the US government shutdown is likely to dominate much of the discussions at the World Bank and International Monetary Fund meetings. The sudden halt in official information from an economy estimated at $30 trillion, representing about a quarter of global output, raises significant concerns.
Erosion of Trust
The IMF points out that increased political pressure on policy institutions can erode public trust in their ability to fulfill their missions. Pressure on technical bureaucracies responsible for data collection and dissemination can also undermine public and market confidence in official statistics, greatly increasing the difficulty for central banks and policymakers to determine policies. It adds that political interference that leads to the deterioration of data quality, reliability, and timeliness also increases the possibility of policy errors.
Imperfect Alternatives
Although some data is still available from other sources, such as the Federal Reserve and private data, these alternatives are not ideal. Adam Posen, president of the Peterson Institute for International Economics and a former Bank of England official, says that the monthly flow of US data, although widely discussed, has never been a decisive factor for other central banks. However, he adds that the government shutdown itself and the turmoil surrounding the Bureau of Labor Statistics are increasing external doubts about US governance and credibility. This ultimately affects reserve management and currency decisions and leads to expectations of volatility that did not exist before in the United States.
Impact of Economic Policies
While the spring meetings of the IMF and World Bank focused largely on the uncertainty caused by Trump's rising tariffs and protectionist plans, the focus is now on how companies, countries, and consumers are responding to this new landscape. According to the IMF's update to the "World Economic Outlook," shifts in policies have had a significant but not huge impact on economic prospects. After lowering its global growth forecast by half a percentage point to 2.8% in April, the IMF recouped most of the cut in its latest forecast, now projecting global growth of 3.2% this year.
However, with a significant gap in the data flow covering nearly a quarter of global economic output, the longer the government shutdown lasts, the more uncertain the outlook becomes.
Robert Kahn, global head of macro at Eurasia Group, says, "Of course, there is still a great deal of information available, and policymakers are investing a lot of energy in collecting granular data and anecdotal evidence about the US. But how best to integrate them, and importantly, how markets will react to this news, are key unknowns. Over time, uncertainty accumulates, and the risk of making mistakes rises."
VN
