The US central bank cut interest rates on Wednesday, marking the second rate cut this year amid economic turbulence stemming from the federal government shutdown and tariff policies.
Move Arrives at Unprecedented Moment for Federal Reserve
The move to cut the benchmark interest rate by a quarter point to a span of 4% to 3.75% arrives at an unprecedented juncture for the central bank. The institution has been under significant strain to lower borrowing costs despite ongoing price increases.
Fed Statement Highlights Labor Market Changes
In a statement, the Fed stated that the jobless rate had increased but stays modest. “Employment growth have decelerated,” the statement reads. “Price increases has moved up and remains moderately high.”
Federal Closure Hinders Fed’s Job
The ongoing federal government shutdown, now among the lengthiest in American history, has also complicated the central bank’s task. Gathering of important economic data has been suspended without a timeline as staff at the Bureau of Labor Statistics are on leave during the closure.
Data Gap Affects Policy Decisions
The Fed typically studies labor statistics to determine employment trends, including the number of new jobs added to the market and the current jobless percentage. The last jobs report was released in the beginning of last month, prior to the shutdown, and provided a somewhat gloomy overview of the employment scene in the previous month.
The number of jobs added to the economy in the summer month was down by over 100k since the spring, and unemployment crept up to 4.3% – the highest since 2021.
Private Data Indicate Ongoing Slowdown
Though BLS was set to release last month’s employment data in the start of last month, it suspended its publication when the closure started. Employment data company a leading payroll processor indicated recently that the business segment cut 32,000 positions in September, a sign that the job market is continuing to slow.
“Supply as well as demand for workers has declined quite sharply,” Fed chair Jerome Powell said recently, which he had earlier said comes from trade and immigration measures.
Inflation Report Shows Moderate Increase
Though BLS’s employment data has been suspended, the bureau still issued its inflation report for September that indicated that prices are rising, albeit slowly. Costs rose 3% over the last year, the peak since January. In spring, the annual inflation rate was two point three percent, the minimum it has been since 2021. The central bank’s goal inflation rate is 2%.
