The US central bank lowered borrowing costs on Wednesday, marking the second rate cut this year during financial volatility stemming from the federal government shutdown and tariff policies.
Move Arrives at Extraordinary Time for Federal Reserve
The move to cut the benchmark interest rate by a quarter point to a range of 3.75% to 4% arrives at an extraordinary juncture for the Fed. The authority has been under immense pressure to lower borrowing costs even with persistent inflation.
Central Bank Announcement Notes Job Market Changes
In a announcement, the Federal Reserve stated that the unemployment rate had gone up but remains low. “Employment growth have decelerated,” the release reads. “Price increases has moved up and remains moderately high.”
Federal Closure Complicates Central Bank’s Task
The ongoing federal government shutdown, now among the lengthiest in US history, has also complicated the central bank’s task. Collection of key economic data has been suspended without a timeline as employees at the Bureau of Labor Statistics are furloughed during the closure.
Data Gap Affects Policy Decisions
The Fed typically studies BLS data to determine labor market conditions, such as the number of new jobs added to the economy and the present unemployment rate. The most recent employment data was released in the beginning of last month, before the closure, and provided a relatively bleak snapshot of the jobs market in the previous month.
The figure of positions added to the economy in August was down by over 100k since the earlier season, and unemployment rose to 4.3% – the highest since 2021.
Alternative Reports Indicate Ongoing Slowdown
Though BLS was scheduled to publish last month’s employment data in early October, it halted its publication when the shutdown began. Private payroll firm ADP indicated earlier this month that the private sector cut 32,000 positions in last month, a indication that the employment landscape is still decelerating.
“Supply as well as demand for labor has fallen quite sharply,” central bank head Jerome Powell said earlier this month, which he had previously said stems from trade and immigration measures.
Price Data Reveals Gradual Rise
Though the bureau’s employment data has been suspended, the agency still released its inflation report for September that showed that prices are rising, albeit slowly. Costs increased 3% over the last year, the peak since January. 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%.
