The US monetary authority cut borrowing costs on Wednesday, marking the second rate cut this year during financial volatility originating from the federal government shutdown and trade duties.
Decision Comes at Extraordinary Moment for Federal Reserve
The move to reduce the benchmark interest rate by a quarter point to a range of 4% to 3.75% arrives at an extraordinary juncture for the central bank. The institution has been under immense pressure to lower borrowing costs despite ongoing price increases.
Fed Statement Notes Job Market Changes
In a statement, the Fed said that the unemployment rate had gone up but stays modest. “Job gains have decelerated,” the release reads. “Price increases has moved up and remains somewhat elevated.”
Federal Closure Complicates Fed’s Job
The continuing federal government shutdown, now one of the longest in US history, has also hindered the Fed’s job. Gathering of key financial statistics has been indefinitely halted as staff at the BLS are on leave during the closure.
Information Shortage Affects Monetary Moves
The Fed usually analyzes labor statistics to assess labor market conditions, including the number of new jobs created to the market and the present unemployment rate. The most recent employment data was released in the beginning of last month, prior to the closure, and provided a relatively bleak overview of the employment scene in August.
The number of positions added to the market in August was down by over 100k since the spring, and joblessness crept up to four point three percent – the peak since three years ago.
Alternative Reports Indicate Continued Slowdown
Though BLS was scheduled to publish September’s job market report in early October, it suspended its publication when the closure started. Private payroll firm a leading payroll processor indicated earlier this month that the private sector cut 32,000 positions in last month, a sign that the job market is still decelerating.
“Supply as well as demand for labor has declined significantly,” Fed chair Jerome Powell said recently, a trend he had previously attributed comes from trade and immigration measures.
Inflation Report Shows Moderate Rise
Though BLS’s employment data has been suspended, the agency still released its inflation report for September that showed that prices are going up, albeit slowly. Prices increased three percent over the last year, the highest since January. In spring, the annual inflation rate was 2.3%, the minimum it has been since three years ago. The central bank’s goal inflation rate is two percent.
