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From Banking and Finance Law Daily, January 24, 2019

Warren asks Fed about government shutdown’s impact on monetary policy

By Thomas G. Wolfe, J.D.

Some analysts now believe that the partial shutdown of the federal government is "no longer just a political sideshow; it’s a real recession risk," Senator Warren communicated.

In a letter to the Federal Reserve Board, Sen. Elizabeth Warren (D-Mass), a member of the Banking, Housing, and Urban Affairs Committee, is requesting information concerning "the impact of the federal government shutdown on the Federal Reserve’s (Fed) ability to make monetary policy decisions." Warren observes that when the Fed typically makes those decisions, it relies heavily on economic data from other federal agencies, but some of those agencies are now hampered by the partial shutdown. Noting that the Federal Open Market Committee (FOMC) is presently scheduled for a two-day meeting (Jan. 29 and 30) to evaluate interest rates and help steer the economy, Warren’s letter asks the Fed several questions about the agency’s ability to "obtain vital and up-to-date economic information." Warren requests that the Fed answer her questions prior to the FOMC’s upcoming meeting and "no later than January 28, 2019."

In her Jan. 23, 2019, letter to Fed Chairman Jerome Powell, Warren states that although the Fed is funded "independently from the congressional appropriations process," the Fed still relies on data from some other agencies "that are currently closed." For instance, the senator points to the Department of Commerce as an example of an agency greatly affected by the government shutdown, stressing that the Commerce Department is responsible for collecting and reporting the gross domestic product—"one of the broadest measures of economic activity."

Warren tells the Fed that, as the shutdown continues, "you will likely face increased difficulty making informed decisions that will have a major impact on the American economy." In addition, Warren speculates that "consumer spending and business investment could plummet amid concerns over the stability of the government and the economy," if the government shutdown should continue.

Warren’s questions. In Warren’s view, the upcoming FOMC meeting takes on added significance "if the economy is beginning to face headwinds and uncertainty caused by the shutdown." In advance of that Jan. 29-30 meeting, Warren asks the Fed:

  • What economic reports or data have not been received on schedule by the Fed, particularly since Dec. 22, 2018, due to the partial government shutdown?
  • What reports and other data sources are set to be received by the Fed, from the present through the end of February, that "could be put at risk" by the partial government shutdown?
  • How will the lack of data impact the upcoming January FOMC meeting if the partial government shutdown continues?
  • What impact will the shutdown have on the Fed’s ability to make economic decisions if the federal government is re-opened prior to the January FOMC meeting?
  • What other Fed functions "are inhibited" by the government shutdown?
  • Is the Fed preparing for the possibility of a recession (which could possibly stem, at least in part, from the partial government shutdown) and actively working to ensure that a recession does not happen?
  • Will the partial government shutdown "affect the tools available to the Fed" to prevent and respond to a possible economic slowdown?

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