The US monetary authority lowered borrowing costs on midweek, representing the second reduction in the current year during economic turbulence stemming from the government closure and tariff policies.
Decision Comes at Unprecedented Time for Central Bank
The decision to cut the key rate by a 0.25% to a span of 3.75% to 4% comes at an unprecedented moment for the Fed. The authority has been under significant strain to cut rates despite persistent inflation.
Fed Statement Highlights Labor Market Changes
In a announcement, the Federal Reserve said that the unemployment rate had increased but stays modest. “Job gains have slowed,” the statement reads. “Inflation has risen and remains moderately high.”
Federal Closure Hinders Fed’s Job
The continuing federal government shutdown, now one of the longest in US history, has also hindered the central bank’s task. Collection of key economic data has been indefinitely halted as employees at the Bureau of Labor Statistics are on leave during the closure.
Data Gap Affects Policy Decisions
The Fed usually studies BLS data to assess labor market conditions, including the count of new jobs created to the market and the current jobless percentage. The most recent employment data was published in early September, prior to the shutdown, and provided a relatively bleak overview of the employment scene in the previous month.
The number of jobs added to the market in August was down by over 100k since the earlier season, and unemployment crept up to 4.3% – the highest since 2021.
Private Data Indicate Continued Slowdown
Though the bureau was scheduled to release September’s job market report in the start of last month, it suspended its release once the closure began. Employment data company ADP indicated recently that the private sector cut 32,000 jobs in last month, a sign that the job market is continuing to slow.
“Both the supply and demand for workers has fallen significantly,” central bank head Jerome Powell said earlier this month, which he had earlier attributed comes from immigration and tariff policies.
Inflation Report Shows Gradual Increase
Though BLS’s jobs report has been suspended, the agency still issued its price statistics for last month that showed that prices are rising, albeit slowly. Prices increased 3% over the last year, the highest since January. In spring, the yearly price increase was two point three percent, the lowest it has been since 2021. The Fed’s target inflation rate is 2%.
