The US central bank reduced borrowing costs on Wednesday, representing the second rate cut this year during financial volatility stemming from the federal government shutdown and trade duties.
Move Comes at Extraordinary Time for Federal Reserve
The decision to cut the key rate by a 0.25% to a span of 3.75% to 4% comes at an extraordinary moment for the Fed. The authority has been under immense pressure to cut rates despite ongoing price increases.
Fed Statement Notes Job Market Shifts
In a statement, the Fed said that the jobless rate had gone up but remains low. “Employment growth have decelerated,” the release reads. “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 US history, has also hindered the central bank’s task. Gathering of important economic data 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 Fed typically studies BLS data to assess labor market conditions, including the number of employment gains created to the market and the current jobless percentage. The last jobs report was released in early September, before the shutdown, and provided a relatively bleak overview of the jobs market in August.
The figure of positions added to the economy in August was lower by more than 100,000 since the spring, and unemployment rose to 4.3% – the peak since three years ago.
Private Data Show Ongoing Decline
Though the bureau was scheduled to publish September’s job market report in the start of last month, it suspended its publication once the shutdown started. Private payroll firm a leading payroll processor indicated recently that the private sector cut 32,000 positions in September, a sign that the employment landscape is still decelerating.
“Supply as well as demand for labor has fallen significantly,” central bank head Jerome Powell stated earlier this month, a trend he had previously attributed stems from trade and immigration measures.
Price Data Shows Gradual Increase
Though the bureau’s employment data has been paused, the bureau still issued its price statistics for last month that indicated that costs are rising, albeit slowly. Prices increased 3% over the past twelve months, the peak since January. In April, the yearly price increase was two point three percent, the lowest it has been since three years ago. The Fed’s target price increase is 2%.
