The United States central bank cut interest rates on Wednesday, representing the second reduction in the current year during financial volatility originating from the federal government shutdown and trade duties.
Decision Comes at Extraordinary Time for Central Bank
The decision to cut the key rate by a 0.25% to a range of 4% to 3.75% comes at an unprecedented juncture for the central bank. The institution has been under significant strain to lower borrowing costs even with ongoing price increases.
Central Bank Announcement Highlights Labor Market Changes
In a statement, the Fed said that the jobless rate had gone up but stays modest. “Employment growth have slowed,” the statement reads. “Inflation has moved up and stays moderately high.”
Government Shutdown Complicates Fed’s Job
The continuing federal government shutdown, now one of the longest in US history, has also hindered the Fed’s job. Collection of key economic data has been indefinitely halted as staff at the BLS are on leave during the shutdown.
Data Gap Impacts Policy Decisions
The Fed typically studies BLS data to assess labor market conditions, such as the count of employment gains added to the economy and the current jobless percentage. The most recent employment data was released in the beginning of last month, before the closure, and gave a relatively bleak snapshot of the jobs market in the previous month.
The figure of jobs created to the market in August was lower by over 100k since the earlier season, and joblessness crept up to 4.3% – the peak since three years ago.
Alternative Reports Show Ongoing Decline
Though BLS was set to publish last month’s employment data in early October, it suspended its publication once the shutdown started. Private payroll firm a leading payroll processor indicated recently that the business segment eliminated 32,000 positions in last month, a sign that the job market is continuing to slow.
“Supply as well as demand for labor has declined significantly,” Fed chair Jerome Powell said recently, a trend he had earlier said comes from trade and immigration measures.
Price Data Shows Gradual Increase
Though BLS’s jobs report has been paused, the agency still released its inflation report for September that indicated that costs are rising, albeit slowly. Prices increased 3% over the past twelve months, the highest since the start of the year. In spring, the annual inflation rate was two point three percent, the lowest it has been since three years ago. The central bank’s goal inflation rate is two percent.
