The US central bank cut borrowing costs on Wednesday, marking the second rate cut this year during economic turbulence stemming from the government closure and trade duties.
Move Comes at Extraordinary Moment for Central Bank
The move to cut the key rate by a quarter point to a span of 3.75% to 4% comes at an extraordinary moment for the Fed. The authority has been under significant strain to cut rates despite persistent inflation.
Fed Statement Notes Job Market Changes
In a statement, the Fed stated that the jobless rate had gone up but remains low. “Job gains have slowed,” the statement reads. “Inflation has moved up and stays somewhat elevated.”
Government Shutdown Complicates Central Bank’s Task
The continuing government stoppage, now one of the longest in American history, has also hindered the Fed’s job. Collection of important financial statistics has been indefinitely halted as staff at the Bureau of Labor Statistics are on leave during the closure.
Information Shortage Affects Monetary Moves
The Federal Reserve usually studies BLS data to determine labor market conditions, including the count of new jobs created to the economy and the current unemployment rate. The last jobs report was published in the beginning of last month, before the shutdown, and provided a relatively bleak overview of the jobs market in August.
The number of jobs added to the economy in the summer month was down by over 100k since the earlier season, and joblessness rose to four point three percent – the peak since three years ago.
Private Data Indicate Ongoing Slowdown
Though the bureau was set to publish September’s employment data in the start of last month, it halted its publication when the shutdown started. Private payroll firm ADP reported earlier this month that the private sector eliminated 32,000 jobs in September, a sign that the job market is continuing to slow.
“Both the supply and demand for labor has declined significantly,” Fed chair the Fed chairman said earlier this month, a trend he had previously said stems from immigration and tariff policies.
Price Data Shows Gradual Increase
Though BLS’s jobs report has been paused, the agency still issued its inflation report for last month that showed that prices are going up, although gradually. Costs increased 3% over the last year, the highest since January. In April, the yearly price increase was 2.3%, the lowest it has been since 2021. The Fed’s target inflation rate is two percent.
