The US monetary authority lowered borrowing costs on midweek, representing the second rate cut this year amid financial volatility stemming from the federal government shutdown and tariff policies.
Decision Comes at Extraordinary Moment for Central Bank
The decision to reduce the key rate by a 0.25% to a range of 3.75% to 4% comes at an unprecedented moment for the central bank. The authority has been under significant strain to lower borrowing costs even with ongoing price increases.
Fed Statement Notes Job Market Shifts
In a announcement, the Federal Reserve said that the unemployment rate had gone up but stays modest. “Employment growth have decelerated,” the statement notes. “Inflation has risen and remains somewhat elevated.”
Government Shutdown Complicates Central Bank’s Task
The ongoing federal government shutdown, now one of the longest in American history, has also hindered the central bank’s task. Collection of key economic data has been indefinitely halted as employees at the BLS are furloughed during the shutdown.
Data Gap Affects Monetary Moves
The Fed typically studies labor statistics to determine labor market conditions, such as the count of new jobs added to the economy and the current unemployment rate. The most recent employment data was released in early September, before the shutdown, and provided a somewhat gloomy snapshot of the jobs market in August.
The figure of jobs added to the economy in August was lower by more than 100,000 since the spring, and unemployment rose to 4.3% – the highest since 2021.
Alternative Reports Indicate Continued Slowdown
Though BLS was set to publish September’s employment data in early October, it suspended its release when the shutdown started. Employment data company a leading payroll processor reported recently that the business segment eliminated 32,000 jobs in last month, a sign that the employment landscape is continuing to slow.
“Supply as well as demand for workers has fallen significantly,” central bank head the Fed chairman said recently, which he had previously said comes from immigration and tariff policies.
Inflation Report Shows Moderate Increase
Though BLS’s jobs report has been suspended, the agency still issued its price statistics for last month that indicated that costs are rising, albeit gradually. Costs increased 3% over the past twelve months, the peak since the start of the year. In spring, the annual inflation rate was two point three percent, the minimum it has been since 2021. The Fed’s target price increase is two percent.
