The US central bank reduced interest rates on midweek, representing the second rate cut in the current year during economic turbulence originating from the government closure and tariff policies.
Move Comes at Unprecedented Moment for Central Bank
The move to cut the key rate by a quarter point to a range of 4% to 3.75% arrives at an extraordinary moment for the central bank. The institution has been under significant strain to lower borrowing costs despite ongoing price increases.
Fed Statement Notes Labor Market Shifts
In a announcement, the Fed stated that the unemployment rate had gone up but stays modest. “Job gains have decelerated,” the statement notes. “Price increases has risen and remains moderately high.”
Government Shutdown Complicates Fed’s Job
The ongoing federal government shutdown, now one of the longest in American history, has also complicated the Fed’s job. Collection of important economic data has been suspended without a timeline as staff at the BLS are furloughed during the closure.
Data Gap Affects Monetary Moves
The Fed typically studies BLS data to determine employment trends, such as the number of new jobs added to the market and the present unemployment rate. The last jobs report was released in early September, prior to the shutdown, and gave a somewhat gloomy snapshot of the jobs market in August.
The number of jobs added to the economy in the summer month was lower by over 100k since the spring, and unemployment crept up to 4.3% – the highest since 2021.
Private Data Show Ongoing Slowdown
Though BLS was scheduled to release last month’s job market report in early October, it halted its publication when the shutdown started. Private payroll firm a leading payroll processor indicated earlier this month that the private sector cut thirty-two thousand positions 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 recently, a trend he had earlier said stems from immigration and tariff policies.
Inflation Report Reveals Gradual Rise
Though BLS’s employment data has been suspended, the agency still released its price statistics for September that indicated that prices are going up, albeit slowly. Prices rose three percent over the last year, the highest since the start of the year. In April, the yearly price increase was two point three percent, the lowest it has been since three years ago. The Fed’s target price increase is two percent.
