The US monetary authority cut borrowing costs on Wednesday, representing the second reduction in the current year during economic turbulence stemming from the government closure and trade duties.
Decision Comes at Unprecedented Moment for Federal Reserve
The decision to cut the key rate by a quarter point to a range of 4% to 3.75% comes at an unprecedented juncture for the central bank. The institution has been under immense pressure to lower borrowing costs despite persistent inflation.
Fed Statement Highlights Labor Market Changes
In a announcement, the Fed stated that the unemployment rate had increased but stays modest. “Employment growth have slowed,” the statement notes. “Price increases has moved up and remains moderately high.”
Government Shutdown Hinders Fed’s Job
The continuing federal government shutdown, now one of the longest in American history, has also complicated the Fed’s job. Collection of important financial statistics has been indefinitely halted as staff at the Bureau of Labor Statistics are furloughed during the shutdown.
Information Shortage Affects Policy Decisions
The Federal Reserve usually studies labor statistics to determine labor market conditions, including the number of employment gains added to the market and the current jobless percentage. The last jobs report was released in early September, prior to the shutdown, and gave a relatively bleak overview of the jobs market in August.
The number of positions added to the market in August was down by over 100k since the spring, and unemployment crept up to 4.3% – the peak since 2021.
Alternative Reports Indicate Ongoing Slowdown
Though BLS was set to release September’s employment data in early October, it halted its release once the closure began. Employment data company ADP reported earlier this month that the private sector eliminated thirty-two thousand positions in September, a sign that the job market is continuing to slow.
“Supply as well as demand for workers has fallen quite sharply,” Fed chair the Fed chairman said earlier this month, a trend he had earlier said comes from immigration and tariff policies.
Inflation Report Reveals Gradual Increase
Though BLS’s employment data has been paused, the agency still released its price statistics for September that showed that prices are rising, albeit gradually. Costs increased 3% over the last year, the highest since the start of the year. In spring, the annual inflation rate was 2.3%, the lowest it has been since 2021. The Fed’s target inflation rate is two percent.
