The US monetary authority reduced borrowing costs on Wednesday, representing the second rate cut this year amid financial volatility stemming from the federal government shutdown and trade duties.
Decision Comes at Extraordinary Time for Federal Reserve
The decision to reduce the benchmark interest rate by a 0.25% to a range of 3.75% to 4% comes at an extraordinary juncture for the Fed. The authority has been under significant strain to cut rates despite persistent inflation.
Fed Statement Highlights Labor Market Changes
In a statement, the Fed stated that the unemployment rate had increased but stays modest. “Job gains have decelerated,” the statement reads. “Inflation has moved up and remains somewhat elevated.”
Government Shutdown Complicates Central Bank’s Task
The ongoing government stoppage, now one of the longest in American history, has also complicated the central bank’s task. Collection of key economic data has been indefinitely halted as employees at the BLS are on leave during the closure.
Data Gap Impacts Monetary Moves
The Fed typically analyzes BLS data to determine employment trends, such as the number of employment gains created to the economy and the present unemployment rate. The most recent employment data was published in early September, prior to the closure, and provided a somewhat gloomy snapshot of the jobs market in the previous month.
The figure of jobs created to the market in the summer month was down by more than 100,000 since the earlier season, and unemployment rose to four point three percent – the peak since three years ago.
Alternative Reports Show Ongoing Slowdown
Though the bureau was set to release last month’s employment data in early October, it halted its publication when the shutdown started. Private payroll firm ADP indicated recently 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 workers has fallen quite sharply,” Fed chair the Fed chairman said recently, a trend he had earlier attributed stems from trade and immigration measures.
Price Data Reveals Gradual Rise
Though BLS’s jobs report has been suspended, the agency still released its price statistics for last month that showed that costs are going up, although gradually. Prices rose three percent over the past twelve months, the highest since January. In April, the annual inflation rate was 2.3%, the lowest it has been since three years ago. The Fed’s target inflation rate is two percent.
