Distorted Data, Inflation Signs, Fed Sweepstakes
Last Week Added Little to Our Knowledge
Today’s SriKonomics focuses on two related developments that deserve more scrutiny than they have received so far.
First, the initial set of official employment and inflation reports released last week were deeply flawed and should not be over-interpreted. Second, a growing number of individuals positioning themselves as potential candidates for the Federal Reserve Chairmanship have made public statements signaling a willingness to lower policy interest rates aggressively—rather than waiting for clearer, more reliable economic information.
This stance aligns closely with President Trump’s repeated assertions that his preferred nominee would be someone prepared to reduce the federal funds rate substantially from its current 3.5%–3.75% range irrespective of prevailing economic conditions.
On the labor front, the headline figures paint a misleading picture. The U.S. economy reportedly lost 105,000 jobs in October and gained 64,000 in November. The October decline, in particular, was heavily distorted by the departure of 162,000 federal workers who accepted separation payouts as part of the administration’s effort to shrink the federal workforce. Thus, the October employment report was affected twice over: first by delayed publication due to the federal government shutdown, and second by the outsized impact of federal job cuts embedded in the data.
The unemployment rate rose from 4.4% in September to 4.6% in November. No unemployment rate was published for October because of the shutdown. Importantly, this increase coincided with a rise in the labor force participation rate—from 62.4% in September to 62.5% in November, with the October figure again missing. When a larger share of the working-age population enters the labor force, an initial modest uptick in the unemployment rate is neither surprising nor economically troubling.
The inflation data released alongside the employment report suffer from similar interpretive problems. Both headline and core inflation measures softened, prompting renewed calls from some quarters for immediate policy easing. However, much of the deceleration reflects temporary and sector-specific factors rather than a broad-based disinflationary trend. Energy prices, certain shelter components, and volatile services categories played an outsized role, while longer-term inflation expectations remain broadly elevated.
More importantly, inflation statistics derived from disrupted data collection and seasonal adjustment anomalies should be treated with caution. Drawing strong conclusions from a single, compromised data release risks mistaking statistical noise for a genuine shift in underlying inflation dynamics.
Adding to these concerns was a candid admission by New York Fed President John Williams — generally considered to be second only to the Chairman in the Fed hierarchy — during an interview yesterday with Steve Liesman on CNBC Squawk Box. He underscored the difficulty policymakers currently face in interpreting recent data, noting that the releases have not proved to be a game changer.
Williams conceded that “the data were distorted in some of the categories, and that pushed down the CPI reading, probably by a tenth or so.” He also noted that the November inflation figures came from data collected in the second half of the month which were affected by sales introduced by merchants. He would wait to see if a better understanding came from December and January data.
Despite these uncertainties, several prospective Fed Chair candidates have publicly emphasized the need for swift and sizable interest rate cuts. Their commentary suggests a preference for acting on preliminary, distorted data rather than waiting for revisions, benchmark updates, and a clearer post-shutdown statistical picture. The candidates’ suggested approach represents a notable departure from the Fed’s traditional emphasis on data validation, trend confirmation, and risk management.
Lowering rates preemptively in response to distorted labor and inflation data would not merely be a technical judgment—it would be a signal that monetary policy is being recalibrated to meet political expectations rather than economic realities. At a time when the data are least reliable, patience is not passivity; it is prudence.
Taken together, recent developments argue strongly for restraint rather than haste. The greater risk today is not that the Federal Reserve waits too long to ease, but that it acts too quickly on information that is incomplete, biased, and subject to significant revision.
Dr. Komal Sri-Kumar
President, Sri-Kumar Global Strategies, Inc.
Santa Monica, California
www.srikumarglobal.com
@SriKGlobal
December 20, 2025
Sri-Kumar Global Strategies, Inc. advises multinational investors and sovereign wealth funds on global risk and opportunities. Dr. Sri-Kumar is regularly featured on business TV and Radio media, and is a frequent speaker in global financial centers on major topics that affect markets and investments.
This publication is for information purposes only. Past performance is no guarantee of future results. While the information and statistical data contained herein are based on sources believed to be reliable, we do not represent that it is accurate and should not be relied on as such or be the basis for an investment decision. Any opinions expressed are current only as of the time made and are subject to change without notice. Sri-Kumar Global Strategies, Inc. assumes no duty to update any such statements. Any holdings of a particular company or security discussed herein are under periodic review by the author and are subject to change at any time, without notice. This report may include estimates, projections and other “forward-looking statements.” Due to numerous factors, actual events may differ substantially from those presented. This publication is not to be used or considered as an offer to sell, or a solicitation to an offer to buy, any security. Nothing contained herein should be considered a recommendation or advice to purchase or sell any security. Sri-Kumar Global Strategies, Inc., or its employees or clients may have positions in securities or investments mentioned in this publication, which positions may change at any time without notice. ©Copyright 2025 -- Sri-Kumar Global Strategies, Inc., 312 Arizona Avenue, Santa Monica, CA 90401; Telephone +1-310-455-6071