The US central bank cut borrowing costs on midweek, representing the second reduction this year amid economic turbulence stemming from the federal government shutdown and tariff policies.
Move Arrives at Unprecedented Moment for Federal Reserve
The move to cut the key rate by a 0.25% to a range of 4% to 3.75% comes at an extraordinary moment for the Fed. The authority has been under significant strain to cut rates even with persistent inflation.
Fed Statement Highlights Labor Market Changes
In a announcement, the Federal Reserve stated that the unemployment rate had gone up but stays modest. “Employment growth have decelerated,” the release notes. “Inflation has risen and stays 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 Fed’s job. Gathering of key financial statistics has been suspended without a timeline as staff at the Bureau of Labor Statistics are on leave during the shutdown.
Data Gap Impacts Policy Decisions
The Fed typically studies BLS data to determine labor market conditions, such as the number of employment gains added to the market and the current unemployment rate. The last jobs report was released in the beginning of last month, prior to the closure, and provided a relatively bleak snapshot of the employment scene in the previous month.
The number of positions created to the market in the summer month was down by over 100k since the spring, and unemployment crept up to 4.3% – the peak since three years ago.
Private Data Show Ongoing Slowdown
Though BLS was set to publish September’s job market report in the start of last month, it suspended its publication when the closure started. Employment data company ADP reported earlier this month that the private sector cut 32,000 jobs in last month, a sign that the job market is continuing to slow.
“Supply as well as demand for labor has fallen quite sharply,” Fed chair Jerome Powell stated recently, which he had previously said stems from immigration and tariff policies.
Inflation Report Shows Gradual Increase
Though BLS’s jobs report has been suspended, the bureau still released its inflation report for September that indicated that prices are rising, albeit gradually. Prices increased 3% over the last year, the highest since the start of the year. In April, the annual inflation rate was 2.3%, the lowest it has been since 2021. The Fed’s target inflation rate is two percent.
