The US central bank cut interest rates on Wednesday, marking the second reduction in the current year amid financial volatility stemming from the federal government shutdown and trade duties.
Move Comes at Extraordinary Moment for Central Bank
The move to cut the benchmark interest rate by a quarter point to a range of 4% to 3.75% comes at an unprecedented juncture for the Fed. The authority has been under immense pressure to lower borrowing costs even with persistent inflation.
Fed Statement Highlights Job Market Changes
In a statement, the Federal Reserve stated that the unemployment rate had increased but stays modest. “Employment growth have decelerated,” the statement notes. “Price increases has risen and remains somewhat elevated.”
Federal Closure Hinders Fed’s Job
The continuing government stoppage, now among the lengthiest in US history, has also hindered the central bank’s task. Collection of key economic data has been suspended without a timeline as employees at the Bureau of Labor Statistics are on leave during the closure.
Information Shortage Affects Policy Decisions
The Fed typically analyzes labor statistics to assess employment trends, including the count of employment gains added to the economy and the present unemployment rate. The most recent employment data was published in early September, before the shutdown, and gave a relatively bleak snapshot of the employment scene in August.
The figure of positions added to the market in August was down by over 100k since the earlier season, and unemployment crept up to 4.3% – the highest since three years ago.
Alternative Reports Indicate Ongoing Decline
Though BLS was scheduled to publish September’s job market report in the start of last month, it halted its release when the closure began. Employment data company a leading payroll processor reported earlier this month that the private sector cut 32,000 positions in September, a sign that the employment landscape is continuing to slow.
“Supply as well as demand for workers has fallen significantly,” central bank head the Fed chairman said recently, a trend he had earlier said comes from trade and immigration measures.
Price Data Shows Gradual Rise
Though BLS’s employment data has been paused, the bureau still issued its inflation report for last month that indicated that costs are going up, although gradually. Prices increased three percent over the last year, the peak since the start of the year. In April, 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 2%.
