The US monetary authority reduced borrowing costs on Wednesday, marking the second reduction this year amid economic turbulence stemming from the government closure and trade duties.
Decision Comes at Unprecedented Time for Federal Reserve
The move to cut the key rate by a quarter point to a span of 3.75% to 4% arrives at an unprecedented juncture for the Fed. The institution has been under significant strain to lower borrowing costs despite persistent inflation.
Fed Statement Highlights Job Market Shifts
In a statement, the Federal Reserve stated that the unemployment rate had increased but remains low. “Employment growth have decelerated,” the release notes. “Price increases has risen and stays moderately high.”
Government Shutdown Complicates Central Bank’s Task
The continuing federal government shutdown, now among the lengthiest in US history, has also complicated the Fed’s job. Collection of key economic data has been indefinitely halted as staff at the BLS are on leave during the shutdown.
Data Gap Impacts Monetary Moves
The Fed usually studies labor statistics to assess labor market conditions, such as the count of new jobs added to the economy and the current unemployment rate. The most recent employment data was released in early September, prior to the closure, and provided a relatively bleak overview of the jobs market in August.
The figure of positions created to the economy in August was down by over 100k since the spring, and unemployment crept up to 4.3% – the highest since three years ago.
Alternative Reports Indicate Ongoing Slowdown
Though the bureau was scheduled to release September’s job market report in the start of last month, it halted its release when the shutdown began. Employment data company a leading payroll processor indicated recently that the private sector eliminated 32,000 jobs in last month, a sign that the job market is continuing to slow.
“Both the supply and demand for labor has fallen significantly,” central bank head Jerome Powell said recently, which he had previously said stems from immigration and tariff policies.
Price Data Shows Gradual Increase
Though BLS’s jobs report has been paused, the agency still issued its price statistics for last month that showed that prices are going up, albeit gradually. Prices increased 3% over the last year, the highest since the start of the year. In spring, the annual inflation rate was two point three percent, the lowest it has been since three years ago. The Fed’s target price increase is two percent.
