The US central bank cut interest rates on Wednesday, marking the second rate cut this year amid financial volatility originating from the federal government shutdown and trade duties.
Move Arrives at Extraordinary Moment for Central Bank
The move to reduce the key rate by a quarter point to a range of 4% to 3.75% arrives at an unprecedented juncture for the Fed. The authority has been under significant strain to cut rates even with persistent inflation.
Central Bank Announcement Highlights Labor Market Shifts
In a announcement, the Fed said that the jobless rate had increased but remains low. “Employment growth have slowed,” the statement notes. “Price increases has moved up and stays somewhat elevated.”
Government Shutdown Hinders Fed’s Job
The continuing government stoppage, now one of the longest in US history, has also hindered the Fed’s job. Collection of important economic data has been indefinitely halted as employees at the BLS are on leave during the shutdown.
Information Shortage Affects Policy Decisions
The Fed usually analyzes BLS data to assess employment trends, such as the number of new jobs created to the economy and the current unemployment rate. The last jobs report was released in early September, before the shutdown, and provided a relatively bleak overview of the employment scene in the previous month.
The number of jobs created to the market in the summer month was lower by over 100k since the spring, and unemployment rose to 4.3% – the highest since three years ago.
Alternative Reports Show Continued Slowdown
Though BLS was scheduled to publish last month’s job market report in early October, it suspended its release once the shutdown began. Employment data company a leading payroll processor reported earlier this month that the private sector eliminated 32,000 jobs in last month, a sign that the employment landscape is still decelerating.
“Supply as well as demand for labor has declined significantly,” Fed chair the Fed chairman said recently, a trend he had earlier said stems from immigration and tariff policies.
Inflation Report Shows Gradual Increase
Though BLS’s employment data has been paused, the agency still issued its price statistics for September that showed that costs are rising, albeit gradually. Costs rose 3% over the last year, the highest since the start of the year. In April, the yearly price increase was 2.3%, the minimum it has been since three years ago. The Fed’s target inflation rate is 2%.
