The US central bank cut borrowing costs on Wednesday, marking the second rate cut in the current year amid economic turbulence stemming from the federal government shutdown and trade duties.
Decision Comes at Unprecedented Moment for Central Bank
The decision to reduce the benchmark interest rate by a 0.25% to a range of 4% to 3.75% comes at an unprecedented moment for the central bank. The authority has been under immense pressure to lower borrowing costs even with ongoing price increases.
Fed Statement Highlights Labor Market Shifts
In a statement, the Federal Reserve stated that the jobless rate had increased but stays modest. “Employment growth have slowed,” the statement reads. “Price increases has risen and stays moderately high.”
Federal Closure Complicates Central Bank’s Task
The ongoing federal government shutdown, now among the lengthiest in American history, has also complicated the Fed’s job. Collection of key financial statistics has been suspended without a timeline as staff at the Bureau of Labor Statistics are furloughed during the closure.
Data Gap Impacts Policy Decisions
The Federal Reserve usually analyzes BLS data to determine labor market conditions, such as the number of new jobs added to the economy and the present unemployment rate. The last jobs report was published in early September, before the closure, and gave a somewhat gloomy overview of the jobs market in August.
The number of jobs created to the market in the summer month was down by over 100k since the spring, and joblessness rose to four point three percent – the peak since three years ago.
Private Data Show Continued Slowdown
Though BLS was set to release last month’s job market report in the start of last month, it halted its release once the shutdown began. Private payroll firm a leading payroll processor reported recently that the business segment eliminated 32,000 positions in last month, a sign that the job market is still decelerating.
“Both the supply and demand for labor has declined quite sharply,” Fed chair the Fed chairman said earlier this month, which he had earlier said comes from trade and immigration measures.
Inflation Report Reveals Moderate Rise
Though the bureau’s employment data has been suspended, the bureau still released its price statistics for September that indicated that prices are going up, albeit slowly. Prices increased three percent over the past twelve months, the peak since the start of the year. In April, the annual inflation rate was two point three percent, the minimum it has been since three years ago. The Fed’s target price increase is two percent.
