The US monetary authority cut interest rates on midweek, representing the second rate cut this year amid economic turbulence originating from the government closure and tariff policies.
Move Comes at Extraordinary Time for Federal Reserve
The move to cut the key rate by a 0.25% to a range of 3.75% to 4% comes at an extraordinary moment for the central bank. The authority has been under significant strain to lower borrowing costs despite persistent inflation.
Central Bank Announcement Notes Labor Market Changes
In a statement, the Fed stated that the unemployment rate had increased but remains low. “Employment growth have slowed,” the statement reads. “Inflation has risen and stays moderately high.”
Federal Closure 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 important financial statistics has been suspended without a timeline as staff at the Bureau of Labor Statistics are furloughed during the shutdown.
Data Gap Impacts Monetary Moves
The Federal Reserve typically studies labor statistics to determine labor market conditions, such as the number of new jobs added to the market and the current unemployment rate. The most recent employment data was published in the beginning of last month, prior to the shutdown, and provided a somewhat gloomy snapshot of the jobs market in August.
The number of jobs added to the market in the summer month was lower by more than 100,000 since the earlier season, and unemployment rose to four point three percent – the peak since three years ago.
Alternative Reports Show Continued Slowdown
Though the bureau was scheduled to release last month’s job market report in the start of last month, it halted its release once the closure started. Employment data company ADP reported recently that the private sector eliminated thirty-two thousand jobs in September, a sign that the job market is still decelerating.
“Supply as well as demand for workers has fallen quite sharply,” central bank head Jerome Powell said earlier this month, a trend he had earlier said comes from trade and immigration measures.
Inflation Report Shows Gradual Increase
Though the bureau’s employment data has been suspended, the agency still issued its inflation report for last month that showed that costs are going up, although slowly. Prices rose 3% over the past twelve months, the highest since the start of the year. In April, the annual inflation rate was 2.3%, the minimum it has been since three years ago. The central bank’s goal inflation rate is 2%.
