The US monetary authority cut borrowing costs on midweek, marking the second rate cut in the current year amid financial volatility originating from the government closure and trade duties.
Move Comes at Extraordinary Time for Federal Reserve
The decision to cut the benchmark interest rate by a quarter point to a span of 4% to 3.75% comes at an unprecedented juncture for the Fed. The institution has been under significant strain to lower borrowing costs even with persistent inflation.
Fed Statement Notes Labor Market Shifts
In a statement, the Federal Reserve stated that the unemployment rate had increased but remains low. “Employment growth have decelerated,” the release reads. “Price increases has risen and remains somewhat elevated.”
Federal Closure Complicates Central Bank’s Task
The continuing government stoppage, now among the lengthiest in US history, has also complicated the Fed’s job. Collection of important economic data has been indefinitely halted as employees at the Bureau of Labor Statistics are on leave during the closure.
Data Gap Affects Policy Decisions
The Fed usually analyzes BLS data to assess employment trends, including the count of new jobs created to the economy and the present jobless percentage. The most recent employment data was released in early September, before the shutdown, and provided a somewhat gloomy snapshot of the jobs market in the previous month.
The number of positions added to the market in the summer month was down by over 100k since the earlier season, and unemployment rose to 4.3% – the highest since three years ago.
Alternative Reports Indicate Continued Decline
Though BLS was scheduled to publish September’s employment data in the start of last month, it suspended its publication once the closure began. Employment data company a leading payroll processor indicated recently that the business segment cut 32,000 jobs in September, a indication that the employment landscape is still decelerating.
“Both the supply and demand for workers has fallen significantly,” Fed chair Jerome Powell said recently, which he had previously attributed comes from trade and immigration measures.
Price Data Reveals Gradual Increase
Though the bureau’s employment data has been suspended, the bureau still released its price statistics for September that showed that prices are rising, albeit slowly. Prices increased three percent over the last year, the highest 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 Fed’s target price increase is two percent.
