The US central bank cut interest rates on midweek, marking the second rate cut this year amid financial volatility originating from the federal government shutdown and trade duties.
Decision Arrives at Extraordinary Time for Federal Reserve
The move to reduce the key rate by a 0.25% to a span of 3.75% to 4% comes at an unprecedented moment for the Fed. The institution has been under immense pressure to lower borrowing costs even with ongoing price increases.
Fed Statement Notes Job Market Changes
In a statement, the Federal Reserve stated that the unemployment rate had gone up but stays modest. “Job gains have decelerated,” the release reads. “Inflation has moved up and stays moderately high.”
Government Shutdown Hinders Fed’s Job
The continuing federal government shutdown, now one of the longest in US history, has also complicated the Fed’s job. Gathering of key financial statistics has been suspended without a timeline as employees at the Bureau of Labor Statistics are furloughed during the shutdown.
Information Shortage Impacts Policy Decisions
The Fed typically studies BLS data to determine labor market conditions, such as the count of new jobs created to the market and the current unemployment rate. The most recent employment data was published in the beginning of last month, prior to the closure, and gave a somewhat gloomy overview of the jobs market in August.
The number of positions added to the market in August was lower by more than 100,000 since the spring, and joblessness crept up to 4.3% – the peak since three years ago.
Alternative Reports Indicate Ongoing Slowdown
Though the bureau was set to publish September’s employment data in early October, it halted its release once the closure started. Employment data company a leading payroll processor indicated earlier this month that the private sector cut 32,000 positions in September, a sign that the employment landscape is continuing to slow.
“Both the supply and demand for labor has declined quite sharply,” Fed chair Jerome Powell said earlier this month, a trend he had earlier said comes from immigration and tariff policies.
Price Data Shows Gradual Rise
Though the bureau’s employment data has been suspended, the bureau still released its price statistics for September that showed that costs are going up, albeit slowly. Prices increased three percent over the last year, the peak since the start of the year. In spring, the yearly price increase was two point three percent, the minimum it has been since three years ago. The Fed’s target inflation rate is 2%.
