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 trade duties.
Move Comes at Unprecedented Moment for Central Bank
The decision to reduce the key rate by a quarter point to a range of 4% to 3.75% comes at an unprecedented juncture for the central bank. The institution has been under significant strain to lower borrowing costs despite ongoing price increases.
Central Bank Announcement Highlights Labor Market Shifts
In a announcement, the Fed said that the jobless rate had gone up but remains low. “Job gains have decelerated,” the release reads. “Price increases has risen and stays moderately high.”
Federal Closure Complicates Fed’s Job
The ongoing federal government shutdown, now one of the longest in US history, has also complicated the Fed’s job. Collection of key financial statistics 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 Federal Reserve typically analyzes BLS data to assess employment trends, such as the number of new jobs created to the economy and the current jobless percentage. The most recent employment data was published in early September, prior to the closure, and provided a relatively bleak snapshot of the employment scene in August.
The number of positions created to the market in the summer month was lower by over 100k since the earlier season, and joblessness crept up to 4.3% – the highest since 2021.
Alternative Reports Show Continued Decline
Though BLS was set to release September’s job market report in early October, it halted its publication once the shutdown began. Private payroll firm a leading payroll processor indicated recently that the private sector cut 32,000 jobs in last month, a sign that the employment landscape is still decelerating.
“Both the supply and demand for labor has fallen quite sharply,” Fed chair Jerome Powell stated recently, which he had earlier said comes from immigration and tariff policies.
Price Data Reveals Gradual Increase
Though the bureau’s employment data has been suspended, the agency still issued its price statistics for September that indicated that prices are rising, although slowly. Costs increased three percent over the past twelve months, the peak since the start of the year. In April, the annual inflation rate was 2.3%, the minimum it has been since 2021. The central bank’s goal inflation rate is two percent.
