The United States central bank reduced borrowing costs on Wednesday, marking the second rate cut this year amid financial volatility stemming from the government closure and trade duties.
Decision Comes at Extraordinary Moment for Federal Reserve
The move to cut the key rate by a quarter point to a range of 3.75% to 4% arrives at an extraordinary moment for the Fed. The institution has been under immense pressure to cut rates even with ongoing price increases.
Central Bank Announcement Notes Labor Market Shifts
In a announcement, the Fed said that the unemployment rate had increased but remains low. “Job gains have slowed,” the statement notes. “Inflation has moved up and stays somewhat elevated.”
Government Shutdown Hinders Central Bank’s Task
The continuing government stoppage, now one of the longest in American history, has also complicated the Fed’s job. Collection of key financial statistics has been suspended without a timeline as staff at the Bureau of Labor Statistics are furloughed during the shutdown.
Data Gap Affects Policy Decisions
The Federal Reserve typically studies BLS data to assess labor market conditions, including the count of new jobs added to the market and the current jobless percentage. The most recent employment data was published in early September, prior to the closure, and provided a relatively bleak overview of the employment scene in August.
The figure of jobs added to the market in August was lower by over 100k since the spring, and unemployment rose to 4.3% – the highest since 2021.
Private Data Indicate Ongoing Decline
Though BLS was scheduled to publish last month’s employment data in early October, it suspended its publication when the shutdown began. Employment data company a leading payroll processor indicated recently that the private sector cut 32,000 jobs in last month, a sign that the job market is continuing to slow.
“Supply as well as demand for workers has fallen significantly,” Fed chair Jerome Powell said recently, a trend he had earlier said stems from trade and immigration measures.
Price Data Shows Gradual Rise
Though BLS’s employment data has been paused, the bureau still released its inflation report for last month that showed that prices are going up, albeit slowly. Prices increased three percent over the past twelve months, the highest since the start of the year. In spring, the annual inflation rate was 2.3%, the minimum it has been since 2021. The central bank’s goal price increase is 2%.
