The US central bank reduced borrowing costs on midweek, representing the second reduction in the current year amid financial volatility stemming from the government closure and trade duties.
Decision Comes at Extraordinary Moment for Central Bank
The move 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 persistent inflation.
Fed Statement Notes Labor Market Shifts
In a announcement, the Federal Reserve stated that the unemployment rate had increased but remains low. “Job gains have slowed,” the release reads. “Inflation has moved up and stays moderately high.”
Government Shutdown Complicates Central Bank’s Task
The ongoing federal government shutdown, now one of the longest in US history, has also hindered the central bank’s task. Gathering of key economic data has been suspended without a timeline as employees at the Bureau of Labor Statistics are on leave during the shutdown.
Information Shortage Affects Policy Decisions
The Fed typically analyzes BLS data to assess employment trends, such as the number of new jobs added to the economy and the current jobless percentage. The last jobs report was released in the beginning of last month, prior to the shutdown, and provided a somewhat gloomy overview of the jobs market in the previous month.
The figure of jobs created to the market in the summer month was down by over 100k since the earlier season, and unemployment crept up to four point three percent – the peak since three years ago.
Alternative Reports Show Continued Decline
Though BLS was scheduled to publish September’s job market report in the start of last month, it suspended its publication when the shutdown began. Employment data company ADP reported recently that the private sector cut 32,000 jobs in September, a indication that the employment landscape is still decelerating.
“Both the supply and demand for labor has fallen quite sharply,” Fed chair Jerome Powell stated earlier this month, which he had earlier said stems from trade and immigration measures.
Price Data Reveals Gradual Increase
Though BLS’s employment data has been paused, the bureau still issued its inflation report for last month that indicated that costs are going up, albeit gradually. Costs rose 3% over the last year, the peak since the start of the year. In spring, the annual inflation rate was two point three percent, the lowest it has been since three years ago. The central bank’s goal inflation rate is 2%.
