The US monetary authority reduced interest rates on Wednesday, marking the second rate cut in the current year during economic turbulence stemming from the federal government shutdown and trade duties.
Decision Comes at Unprecedented Moment for Central Bank
The move to cut the key rate by a 0.25% to a range of 4% to 3.75% comes at an unprecedented moment for the Fed. The institution has been under immense pressure to cut rates despite ongoing price increases.
Fed Statement Notes Labor Market Shifts
In a announcement, the Federal Reserve stated that the jobless rate had gone up but stays modest. “Employment growth have decelerated,” the release reads. “Inflation has moved up and remains moderately high.”
Federal Closure Hinders Central Bank’s Task
The ongoing federal government shutdown, now among the lengthiest in US history, has also hindered the Fed’s job. Collection of key financial statistics has been suspended without a timeline as staff at the Bureau of Labor Statistics are furloughed during the closure.
Data Gap Impacts Monetary Moves
The Federal Reserve typically analyzes labor statistics to determine labor market conditions, including the count of new jobs added to the economy and the current unemployment rate. The most recent employment data was published in early September, prior to the closure, and gave a somewhat gloomy overview of the jobs market in August.
The figure of jobs created to the economy in the summer month was lower by over 100k since the spring, and unemployment crept up to 4.3% – the peak since three years ago.
Alternative Reports Show Continued Decline
Though the bureau was scheduled to publish September’s job market report in early October, it halted its release when the shutdown started. Private payroll firm a leading payroll processor reported earlier this month that the private sector eliminated 32,000 jobs in September, a sign that the job market is still decelerating.
“Supply as well as demand for labor has fallen significantly,” central bank head the Fed chairman said earlier this month, which he had previously said stems from trade and immigration measures.
Inflation Report Reveals 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 going up, albeit slowly. Prices 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 three years ago. The central bank’s goal inflation rate is 2%.
