The US central bank reduced borrowing costs on midweek, marking the second reduction in the current year during economic turbulence stemming from the government closure and tariff policies.
Decision Comes at Extraordinary Moment for Central Bank
The decision to reduce the key rate by a quarter point to a span of 4% to 3.75% comes at an unprecedented juncture for the central bank. The authority has been under immense pressure to lower borrowing costs despite ongoing price increases.
Fed Statement Highlights Job Market Shifts
In a statement, the Fed said that the jobless rate had increased but remains low. “Job gains have decelerated,” the release reads. “Inflation has risen and stays moderately high.”
Government Shutdown Complicates Fed’s Job
The continuing federal government shutdown, 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 employees at the Bureau of Labor Statistics are furloughed during the shutdown.
Information Shortage Affects Policy Decisions
The Federal Reserve usually analyzes BLS data to determine labor market conditions, including the count of new jobs created to the market and the present unemployment rate. The most recent employment data was released in early September, before the closure, and provided a relatively bleak overview of the jobs market in August.
The number of jobs added to the market in August was down by over 100k since the spring, and joblessness crept up to four point three percent – the highest since 2021.
Private Data Show Ongoing Decline
Though BLS was scheduled to publish September’s employment data in early October, it halted its publication once the closure started. Employment data company a leading payroll processor reported earlier this month that the business segment cut 32,000 jobs in September, a sign that the employment landscape is continuing to slow.
“Supply as well as demand for workers has declined quite sharply,” Fed chair Jerome Powell stated recently, a trend he had previously said comes from trade and immigration measures.
Inflation Report Shows Moderate Increase
Though BLS’s employment data has been suspended, the agency still issued its price statistics for last month that indicated that prices are rising, although gradually. Prices increased 3% over the past twelve months, the highest since the start of the year. In April, the yearly price increase was 2.3%, the minimum it has been since 2021. The central bank’s goal price increase is 2%.
