The US central bank reduced interest rates on Wednesday, representing the second reduction this year amid financial volatility stemming from the federal government shutdown and trade duties.
Decision Arrives at Extraordinary Moment for Central Bank
The move to reduce the benchmark interest rate by a quarter point to a range of 4% to 3.75% comes at an unprecedented moment for the Fed. The institution has been under immense pressure to lower borrowing costs despite persistent inflation.
Central Bank Announcement Notes Labor Market Shifts
In a announcement, the Federal Reserve stated that the unemployment rate had gone up but stays modest. “Job gains have decelerated,” the statement notes. “Price increases has risen and stays somewhat elevated.”
Government Shutdown Hinders Fed’s Job
The continuing government stoppage, now one of the longest in US history, has also complicated the Fed’s job. Collection of important financial statistics has been indefinitely halted as staff at the Bureau of Labor Statistics are furloughed during the closure.
Data Gap Impacts Policy Decisions
The Fed typically studies labor statistics to assess labor market conditions, including the count of new jobs added to the economy and the present jobless percentage. The most recent employment data was released in early September, prior to the closure, and provided a relatively bleak overview of the jobs market in August.
The figure of jobs created to the economy in the summer month was down by more than 100,000 since the spring, and joblessness crept up to 4.3% – the peak since three years ago.
Alternative Reports Show Ongoing Slowdown
Though the bureau was set to publish September’s job market report in the start of last month, it suspended its publication once the closure started. Employment data company ADP reported earlier this month that the private sector eliminated 32,000 jobs in September, a sign that the job market is still decelerating.
“Supply as well as demand for labor has declined significantly,” central bank head Jerome Powell stated recently, which he had earlier attributed stems from trade and immigration measures.
Price Data Reveals Moderate Increase
Though BLS’s jobs report has been paused, the agency still released its inflation report for last month that showed that costs are rising, albeit slowly. Prices rose three percent over the past twelve months, the highest since the start of the year. In spring, the yearly price increase was two point three percent, the minimum it has been since three years ago. The Fed’s target inflation rate is two percent.
