The US central bank lowered interest rates on Wednesday, marking the second rate cut this year amid economic turbulence stemming from the government closure and trade duties.
Decision Arrives at Unprecedented Moment for Central Bank
The move to cut the key rate by a quarter point to a range of 3.75% to 4% comes at an unprecedented juncture for the Fed. The institution has been under significant strain to lower borrowing costs even with persistent inflation.
Fed Statement Highlights Labor Market Changes
In a announcement, the Federal Reserve said that the jobless rate had gone up but remains low. “Job gains have decelerated,” the release notes. “Price increases has risen and remains somewhat elevated.”
Government Shutdown Hinders Central Bank’s Task
The ongoing federal government shutdown, now one of the longest in American history, has also hindered the central bank’s task. Collection of important financial statistics has been suspended without a timeline as employees at the Bureau of Labor Statistics are on leave during the shutdown.
Information Shortage Impacts Policy Decisions
The Fed typically studies BLS data to assess labor market conditions, including the count of employment gains added to the market and the current jobless percentage. The most recent employment data was published in the beginning of last month, prior to the shutdown, and provided a relatively bleak overview of the employment scene in the previous month.
The figure of jobs added to the economy in the summer month was lower by over 100k since the spring, and unemployment crept up to four point three percent – the highest since three years ago.
Private Data Show Ongoing Slowdown
Though the bureau was set to publish last month’s employment data in the start of last month, it halted its publication once the shutdown began. Private payroll firm a leading payroll processor reported earlier this month that the business segment eliminated 32,000 jobs in September, a sign that the employment landscape is continuing to slow.
“Supply as well as demand for workers has declined significantly,” central bank head Jerome Powell said earlier this month, a trend he had previously attributed stems from trade and immigration measures.
Price Data Shows Moderate Increase
Though the bureau’s employment data has been paused, the bureau still issued its price statistics for last month that showed that prices are rising, albeit slowly. Prices rose three percent over the last year, the highest since the start of the year. In spring, the annual inflation rate was 2.3%, the minimum it has been since three years ago. The central bank’s goal price increase is 2%.
