The US central bank lowered interest rates on midweek, representing the second reduction in the current year amid economic turbulence originating from the government closure and trade duties.
Move Comes at Unprecedented Time for Central Bank
The move to cut the key rate by a 0.25% to a range of 4% to 3.75% comes at an extraordinary juncture for the central bank. The institution has been under immense pressure to lower borrowing costs despite persistent inflation.
Fed Statement Notes Job Market Shifts
In a statement, the Fed said that the jobless rate had gone up but stays modest. “Job gains have slowed,” the statement notes. “Inflation has moved up and stays somewhat elevated.”
Federal Closure Hinders Central Bank’s Task
The ongoing federal government shutdown, now one of the longest in American history, has also complicated the Fed’s job. Collection of key economic data has been indefinitely halted as employees at the Bureau of Labor Statistics are furloughed during the shutdown.
Data Gap Affects Policy Decisions
The Fed typically analyzes BLS data to determine employment trends, including the number of new jobs added to the economy and the current unemployment rate. The last jobs report was released in the beginning of last month, prior to the closure, and gave a relatively bleak snapshot of the employment scene in the previous month.
The figure of positions added to the economy in August was lower by more than 100,000 since the spring, and unemployment crept up to four point three percent – the highest since 2021.
Alternative Reports Show Ongoing Slowdown
Though BLS was scheduled to release last month’s job market report in the start of last month, it halted its publication when the shutdown began. Private payroll firm a leading payroll processor indicated recently that the private sector cut thirty-two thousand positions in September, a sign that the job market is continuing to slow.
“Both the supply and demand for labor has fallen quite sharply,” Fed chair Jerome Powell said earlier this month, which he had earlier attributed stems from trade and immigration measures.
Inflation Report Reveals Gradual Increase
Though the bureau’s employment data has been paused, the bureau still released its inflation report for September that indicated that costs are rising, albeit slowly. Prices increased 3% over the last year, the peak since January. In April, the yearly price increase was 2.3%, the minimum it has been since three years ago. The central bank’s goal inflation rate is 2%.
