The US monetary authority lowered borrowing costs on midweek, representing the second rate cut this year amid financial volatility stemming from the federal government shutdown and trade duties.
Decision Comes at Unprecedented Moment for Federal Reserve
The move to cut the key rate by a 0.25% to a span of 4% to 3.75% comes at an unprecedented juncture for the central bank. The institution has been under immense pressure to cut rates even with ongoing price increases.
Fed Statement Highlights Labor Market Changes
In a statement, the Fed stated that the unemployment rate had gone up but stays modest. “Job gains have decelerated,” the release reads. “Price increases has risen and remains moderately high.”
Federal Closure Complicates Fed’s Job
The ongoing federal government shutdown, now among the lengthiest in US history, has also hindered the central bank’s task. Collection of key financial statistics has been indefinitely halted as employees at the BLS are furloughed during the closure.
Data Gap Affects Policy Decisions
The Fed usually studies labor statistics 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 released in the beginning of last month, before the shutdown, and gave a relatively bleak snapshot of the jobs market in August.
The figure of jobs created to the market in the summer month was down by over 100k since the spring, and unemployment rose to 4.3% – the peak since three years ago.
Private Data Show Continued Decline
Though the bureau was scheduled to release last month’s job market report in early October, it suspended its publication once the shutdown began. Employment data company a leading payroll processor reported recently that the business segment eliminated 32,000 jobs in September, a sign that the job market is still decelerating.
“Both the supply and demand for workers has declined significantly,” central bank head the Fed chairman said recently, which he had previously attributed comes from trade and immigration measures.
Inflation Report Shows Gradual Increase
Though BLS’s jobs report has been paused, the bureau still issued its inflation report for last month that indicated that costs are going up, albeit slowly. Costs increased 3% over the past twelve months, the peak since January. In April, the annual inflation rate was two point three percent, the lowest it has been since 2021. The central bank’s goal price increase is two percent.