Federal Reserve Policy Uncertainty: UBS Expert Warns of "Flying Blind" Decision-Making

This analysis is based on the Fox Business report [1] published on November 13, 2025, featuring UBS Managing Director Jason Katz’s warning that “The Fed is flying blind” regarding future monetary policy decisions. The commentary emerged during a period of significant market stress and policy uncertainty, with major indices experiencing substantial declines [0].

The timing of Katz’s warning coincided with a broad market sell-off, suggesting investor anxiety about Federal Reserve policy uncertainty [0]. The S&P 500 declined 1.30% to 6737.49, while the NASDAQ Composite fell 1.69% to 22870.36, and the Dow Jones Industrial Average dropped 1.49% to 47457.22 [0]. Small-cap stocks were particularly hard hit, with the Russell 2000 declining 2.40% to 2382.98 [0].

Sector performance analysis reveals a clear defensive rotation, with utilities (-3.11%), consumer cyclical (-2.87%), and real estate (-2.37%) leading declines [0]. Conversely, consumer defensive stocks gained 0.87%, basic materials rose 0.08%, and healthcare increased 0.06% [0], indicating investors are positioning for potential economic weakness.

Katz’s “flying blind” assessment appears well-founded given current conditions. According to Reuters, an ongoing government shutdown has disrupted the collection and release of official inflation and labor market data that the Federal Reserve typically relies on for policy decisions [3]. This data vacuum creates significant challenges for evidence-based monetary policy.

Internal divisions within the Fed further complicate the decision-making process. Atlanta Fed President Raphael Bostic maintains that inflation remains the greater threat, advocating for maintaining higher interest rates longer [2]. Other officials predict inflation will subside due to falling housing costs, supporting arguments for rate cuts [2]. This internal disagreement reflects the uncertainty created by incomplete data.

Market expectations for Federal Reserve action have shifted dramatically. The probability of a December rate cut has fallen from 95% a month ago to just 53% currently [3]. Short-term interest rate futures now show only a 47% chance of a December rate cut [4], reflecting growing uncertainty about policy direction.

Recent inflation data from the Cleveland Fed shows prices remain elevated above the Fed’s 2% target [2]. November 2025 CPI stands at 2.97% year-over-year, with core CPI at 2.95% [2]. PCE inflation measures are similarly high at 2.86% overall and 2.91% core [2], providing ammunition for hawkish policymakers who argue against premature rate cuts.

The Federal Reserve’s reliance on comprehensive economic data has become a critical vulnerability. The government shutdown has created a situation where policymakers must make crucial decisions without complete information about inflation trends, labor market conditions, and economic growth. This data dependency crisis fundamentally challenges the Fed’s ability to fulfill its dual mandate of price stability and maximum employment.

Financial markets are struggling to price Federal Reserve policy in the absence of reliable data. The dramatic shift in rate cut probabilities—from near certainty to a coin toss—demonstrates how quickly market expectations can change when traditional data sources are compromised. This volatility suggests that markets may overreact to partial information or rumors, creating additional instability.

The pronounced rotation toward defensive sectors serves as an early warning signal about economic concerns. The outperformance of consumer defensive stocks combined with sharp declines in interest-sensitive sectors like utilities and real estate indicates that market participants are positioning for potential economic weakness or continued high interest rates.

1. Policy Error Probability
   : The Fed may be forced to make critical rate decisions with incomplete information, substantially increasing the probability of policy errors [3][4]. This uncertainty creates heightened volatility risk around Federal Reserve meetings and announcements.

2. Data Quality Concerns
   : Even when economic data is released following the government shutdown, questions about data quality and completeness may persist, potentially undermining confidence in official statistics and policy decisions.

3. Market Volatility
   : The sharp market declines and sector rotation patterns suggest heightened sensitivity to Federal Reserve uncertainty [0]. Technology and growth stocks appear particularly vulnerable, as evidenced by the NASDAQ’s underperformance.

1. Government Shutdown Resolution
   : The timeline for restoring full economic data collection capabilities is crucial for reducing policy uncertainty.

2. Fed Communication Strategy
   : How Federal Reserve officials manage messaging around data limitations and policy uncertainty will significantly impact market stability.

3. Inflation Trend Assessment
   : Continued monitoring of whether inflation moderates further or shows signs of reacceleration will be critical for policy direction.

4. Alternative Data Sources
   : The extent to which the Fed develops and relies on alternative data sources to compensate for official data gaps.

The current situation presents a complex challenge for Federal Reserve policymakers and market participants alike. The combination of data disruptions from the government shutdown, internal policy divisions, and elevated inflation readings above the 2% target creates significant uncertainty about monetary policy direction [2][3].

Market participants should recognize that traditional monetary policy frameworks may be less effective during periods of data limitation. The sharp rotation toward defensive sectors and the dramatic decline in rate cut probabilities suggest that investors are already pricing in higher uncertainty and potential policy volatility [0][3][4].

The Federal Reserve’s ability to navigate this period without making policy errors will depend heavily on its communication strategy and willingness to acknowledge data limitations transparently. Market participants should prepare for potentially increased volatility around Fed meetings and be cautious about overreacting to partial or incomplete economic data releases.