The US monetary authority cut interest rates on Wednesday, representing the second reduction in the current year during financial volatility stemming from the federal government shutdown and tariff policies.
Move Comes at Extraordinary Time for Federal Reserve
The move to reduce the benchmark interest rate by a quarter point to a range of 3.75% to 4% comes at an unprecedented juncture for the central bank. The institution has been under immense pressure to lower borrowing costs despite ongoing price increases.
Central Bank Announcement Highlights Labor Market Changes
In a statement, the Fed stated that the jobless rate had gone up but stays modest. “Employment growth have slowed,” the statement notes. “Inflation has risen and remains moderately high.”
Federal Closure Hinders Central Bank’s Task
The continuing federal government shutdown, now one of the longest in American history, has also complicated the central bank’s task. Collection of important economic data has been indefinitely halted as staff at the BLS are furloughed during the closure.
Data Gap Affects Monetary Moves
The Fed usually analyzes BLS data to determine employment trends, including the number of employment gains created to the economy and the current jobless percentage. The last jobs report was published in the beginning of last month, before the shutdown, and gave a somewhat gloomy overview of the jobs market in the previous month.
The number of jobs added to the market in August was down by more than 100,000 since the spring, and unemployment crept up to 4.3% – the peak since three years ago.
Alternative Reports Show Ongoing Slowdown
Though BLS was set to release last month’s employment data in the start of last month, it halted its release once the shutdown began. Employment data company ADP reported earlier this month that the private sector cut 32,000 jobs in September, a sign that the job market is still decelerating.
“Both the supply and demand for labor has declined quite sharply,” central bank head the Fed chairman stated earlier this month, a trend he had earlier attributed comes from immigration and tariff policies.
Inflation Report Reveals Moderate Rise
Though the bureau’s employment data has been suspended, the agency still issued its inflation report for September that showed that prices are going up, although slowly. Costs rose 3% over the past twelve months, the peak since the start of the year. In spring, the yearly price increase was two point three percent, the minimum it has been since three years ago. The Fed’s target price increase is two percent.
