Neil Irwin at Axios reported on Monday on Federal Reserve Chair Kevin Warsh’s thinking on how to advance the US central bank’s data sourcing and projection building:
[Warsh’s] been particularly focused on whether the technology might enable the Fed to move beyond the backward-looking survey data and forward-looking projections on which central bankers traditionally rely.
His aspiration is that eventually, real-time information from retailers, banks and other companies can give a more reliable guide to what’s happening to inflation and growth than government surveys that have considerable delays, sampling error, and revisions.
In a previous article “The curious case of why UK and Canada CPI use grocery scanner data but the US can’t,” we explained a strange situation that the US’s CPI-producing agency, the Bureau of Labor Statistics, while it is still a high-functioning national statistics agency which generates gold-standard economic indicators, has so far failed to adopt a CPI data source upgrade—the use of supermarket point of sales data to compile its grocery price index.
As the article title suggests, this is surprising given that Statistics Canada and the UK’s Office of National Statistics both have adopted this data source. So what is stopping the BLS then? The long stated issue is that this kind of data has to be acquired at cost in the US and the BLS thought it was too expensive to adopt them.
(And the article is a funny story about how these data can be acquired for free in Canada and the UK, which I won’t spoil the whole thing for you here.)
A lesson of the story is that sometimes alternative data can be too costly for a government agency to source and incorporate into national economic indicators. Hence, it is good for us to think about one question when one advocates the use of “alternative data sources”: Who pays for that and how?
Given this backdrop, let’s reconsider what Warsh wants to achieve at the Fed on the data front—”real-time information from retailers, banks and other companies.”
So… Who pays for that and how?
If these kinds of “real-time” data will be provided to the Fed at the price of zero because, say, the business owners of the “retailers, banks and other companies” admire the work Warsh has been doing, I have two follow-up questions:
- Wouldn’t it be a great idea for the Fed to share these new flows of quality data with the BLS and BEA, so all the Federal statistics agencies can improve their data quality with much less worry about the budgetary costs?
- If these are provided at the “benevolence” of several private companies, how much should the Fed rely on them? How can the US central bank make sure the flow will be maintained in the future? (For example, payroll processing company ADP in October 2025 cut the Fed’s access to their data abruptly after it was allegedly displeased by Fed governor Waller’s public disclosure of the central bank’s use of these data.)
As we have quoted Former BLS Commissioner Erika McEntarfer in the previous article:
“BLS does get commercial data directly from companies for some items – new vehicles, gas, cell phone services, prescription drugs. They have been expanding use of alternative data but are not yet where they would like to be – mostly because they are constrained by cost and staffing,” McEntarfer explained. For example, the BLS has to engage in extensive research before they can integrate the data into the US statistical system.
If they are not free, the “who pays for what and how” question is even more relevant. For sure, money should be much less of an issue for the Federal Reserve System, compared to the BLS or BEA, as it has an independent budget that is separate from the federal government.
But remember the reason that former Chair Jerome Powell was threatened with a criminal indictment from the Department of Justice for the problem of Fed building renovation budget overrun. Last year, the Fed also initiated a program to cut 10% of its workforce in the next several years in an attempt to control its budget, to avoid an image of “unelected officials spending public money uncontrollably”.
If the Fed is spending the kind of money that the BLS can’t afford on building alternative economic indicators that are then used as the benchmark of their own performance in the inflation targeting business, for example, then at what level of spending should the public start to worry that these ‘unelected officials’ at the central bank are ‘overreaching their power’ and engaging in ‘mission creep’?
I hope Chair Warsh and his Task Force, which enlisted Doug McMillon, former president and CEO of Walmart, as a leader on the data sources front, have prepared good answers to these questions for the public.
